UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34177

Warner Bros. Discovery, Inc.

(Exact name of registrant as specified in its charter)


Delaware									35-2333914
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

230 Park Avenue South									10003
New York, New York									(Zip Code)
(Address of principal executive offices)

~~(240) 662-2000~~(212) 548-5555

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered
Series A Common Stock	~~DISCA~~	~~The Nasdaq Global Select Market~~
~~Series B Common Stock~~	~~DISCB~~	~~The Nasdaq Global Select Market~~
~~Series C Common Stock~~	~~DISCK~~WBD	The Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Total number of shares outstanding of each class of the Registrant’s common stock as of July ~~23, 2021:~~21, 2022:


Series A Common Stock, par value $0.01 per share			~~169,086,967~~
~~Series B Common Stock, par value $0.01 per share~~			~~6,512,378~~
~~Series C Common Stock, par value $0.01 per share~~			~~330,146,263~~2,427,592,861

WARNER BROS. DISCOVERY, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. Unaudited Financial Statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Advertising	$	2,721	$	1,634	$	4,197	$	3,043
Distribution	4,838		1,312		6,190		2,570
Content	2,064		100		2,387		212
Other	204		16		212		29
Total revenues	9,827		3,062		12,986		5,854
Costs and expenses:
Costs of revenues, excluding depreciation and amortization	6,625		1,055		7,861		2,024
Selling, general and administrative	3,538		952		4,578		2,003
Depreciation and amortization	2,266		341		2,791		702

Restructuring and other charges	1,033		7		1,038		22
Loss (gain) on disposition	4		(72)		4		(72)
Total costs and expenses	13,466		2,283		16,272		4,679
Operating (loss) income	(3,639)		779		(3,286)		1,175
Interest expense, net	(511)		(157)		(664)		(320)

Loss from equity investees, net	(43)		(7)		(57)		(11)
Other (expense) income, net	(51)		105		439		173
(Loss) income before income taxes	(4,244)		720		(3,568)		1,017
Income tax benefit (expense)	836		(2)		635		(108)
Net (loss) income	(3,408)		718		(2,933)		909
Net income attributable to noncontrolling interests	(7)		(38)		(23)		(84)
Net income attributable to redeemable noncontrolling interests	(3)		(8)		(6)		(13)
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(3,418)	$	672	$	(2,962)	$	812
Net (loss) income per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic	$	(1.50)	$	1.02	$	(2.09)	$	1.23
Diluted	$	(1.50)	$	1.01	$	(2.09)	$	1.22
Weighted average shares outstanding:
Basic	2,286		589		1,443		587
Diluted	2,286		664		1,443		666

The accompanying notes are an integral part of these consolidated financial statements.

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenues:
Advertising $ 1,637 $ 1,273 $ 3,052 $ 2,675
Distribution 1,368 1,225 2,678 2,448
Other 57 43 124 101
Total revenues 3,062 2,541 5,854 5,224
Costs and expenses:
Costs of revenues, excluding depreciation and amortization 1,055 810 2,024 1,728
Selling, general and administrative 952 635 2,003 1,280
Depreciation and amortization 341 334 702 660
Impairment of goodwill and other intangible assets 0 38 0 38
Restructuring and other charges 7 7 22 22
Gain on disposition (72) 0 (72) 0
Total costs and expenses 2,283 1,824 4,679 3,728
Operating income 779 717 1,175 1,496
Interest expense, net (157) (161) (320) (324)
Loss on extinguishment of debt (1) (71) (4) (71)
Loss from equity investees, net (7) (23) (11) (44)
Other income (expense), net 106 (6) 177 (64)
Income before income taxes 720 456 1,017 993
Income tax expense (2) (156) (108) (286)
Net income 718 300 909 707
Net income attributable to noncontrolling interests (38) (25) (84) (53)
Net income attributable to redeemable noncontrolling interests (8) (4) (13) (6)
Net income available to Discovery, Inc. $ 672 $ 271 $ 812 $ 648
Net income per share allocated to Discovery, Inc. Series A, B and C common stockholders:
Basic $ 1.02 $ 0.40 $ 1.23 $ 0.96
Diluted $ 1.01 $ 0.40 $ 1.22 $ 0.95
Weighted average shares outstanding:
Basic 506 508 501 513
Diluted 664 674 666 680
The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited; in millions)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income $ 718 $ 300 $ 909 $ 707
Other comprehensive income (loss) adjustments, net of tax:
Currency translation 108 116 (59) (25)
Derivatives (112) (15) 125 (174)
Comprehensive income 714 401 975 508
Comprehensive income attributable to noncontrolling interests (38) (25) (84) (53)
Comprehensive income attributable to redeemable noncontrolling interests (8) (4) (13) (6)
Comprehensive income attributable to Discovery, Inc. $ 668 $ 372 $ 878 $ 449
The accompanying notes are an integral part of these consolidated financial statements.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net (loss) income	$	(3,408)	$	718	$	(2,933)	$	909
Other comprehensive (loss) income adjustments, net of tax:
Currency translation	(488)		108		(587)		(59)

Derivatives	(18)		(112)		(36)		125
Comprehensive (loss) income	(3,914)		714		(3,556)		975
Comprehensive income attributable to noncontrolling interests	(7)		(38)		(23)		(84)
Comprehensive income attributable to redeemable noncontrolling interests	(3)		(8)		(6)		(13)
Comprehensive (loss) income attributable to Warner Bros. Discovery, Inc.	$	(3,924)	$	668	$	(3,585)	$	878

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)

June 30, 2021 December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents $ 2,834 $ 2,091
Receivables, net 2,657 2,537
Content rights and prepaid license fees, net 653 532
Prepaid expenses and other current assets 584 970
Total current assets 6,728 6,130
Noncurrent content rights, net 3,606 3,439
Property and equipment, net 1,239 1,206
Goodwill 13,013 13,070
Intangible assets, net 7,075 7,640
Other noncurrent assets 2,911 2,602
Total assets $ 34,572 $ 34,087
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,174 $ 2,190
Deferred revenues 806 557
Current portion of debt 585 335
Total current liabilities 3,565 3,082
Noncurrent portion of debt 14,462 15,069
Deferred income taxes 1,447 1,534
Other noncurrent liabilities 1,790 2,019
Total liabilities 21,264 21,704
Commitments and contingencies (See Note 16) 0 0
Redeemable noncontrolling interests 357 383
Equity:
Discovery, Inc. stockholders’ equity:
Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and outstanding 0 0
Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 4 and 5 shares issued and outstanding 0 0
Series A common stock: $0.01 par value; 1,700 shares authorized; 170 and 163 shares issued; and 169 and 162 shares outstanding 2 2
Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued and outstanding 0 0
Series C common stock: $0.01 par value; 2,000 shares authorized; 559 and 547 shares issued; and 330 and 318 shares outstanding 5 5
Additional paid-in capital 11,000 10,809
Treasury stock, at cost: 230 shares (8,244) (8,244)
Retained earnings 9,360 8,543
Accumulated other comprehensive loss (585) (651)
Total Discovery, Inc. stockholders' equity 11,538 10,464
Noncontrolling interests 1,413 1,536
Total equity 12,951 12,000
Total liabilities and equity $ 34,572 $ 34,087
The accompanying notes are an integral part of these consolidated financial statements.


	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,575	$	3,905
Receivables, net	7,049		2,446

Prepaid expenses and other current assets	5,825		913
Total current assets	15,449		7,264
Film and television content rights and games, net	30,120		3,832
Property and equipment, net	5,597		1,336


Goodwill	34,273		12,912
Intangible assets, net	48,724		6,317

Other noncurrent assets	8,077		2,766
Total assets	$	142,240	$	34,427
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,397	$	412
Accrued liabilities	10,279		2,230

Deferred revenues	1,663		478
Current portion of debt	1,097		339
Total current liabilities	14,436		3,459
Noncurrent portion of debt	51,388		14,420
Deferred income taxes	13,666		1,225
Other noncurrent liabilities	9,803		1,927
Total liabilities	89,293		21,031
Commitments and contingencies (See Note 19)	0		0
Redeemable noncontrolling interests	328		363

Warner Bros. Discovery, Inc. stockholders’ equity:
Series A common stock: $0.01 par value; 10,800 and 0 shares authorized; 2,658 and 0 shares issued; and 2,428 and 0 shares outstanding	27		—
Preferred stock: $0.01 par value; 1,200 and 0 shares authorized, 0 shares issued and outstanding	—		—

Discovery Series A-1 convertible preferred stock: $0.01 par value; 0 and 8 shares authorized, issued and outstanding	—		—
Discovery Series C-1 convertible preferred stock: $0.01 par value; 0 and 6 shares authorized; 0 and 4 shares issued and outstanding	—		—
Discovery Series A common stock: $0.01 par value; 0 and 1,700 shares authorized; 0 and 170 shares issued; and 0 and 169 shares outstanding	—		2
Discovery Series B convertible common stock: $0.01 par value; 0 and 100 shares authorized; 0 and 7 shares issued and outstanding	—		—
Discovery Series C common stock: $0.01 par value; 0 and 2,000 shares authorized; 0 and 559 shares issued; and 0 and 330 shares outstanding	—		5
Additional paid-in capital	54,439		11,086
Treasury stock, at cost: 230 and 230 shares	(8,244)		(8,244)
Retained earnings	6,614		9,580
Accumulated other comprehensive loss	(1,453)		(830)
Total Warner Bros. Discovery, Inc. stockholders' equity	51,383		11,599
Noncontrolling interests	1,236		1,434
Total equity	52,619		13,033
Total liabilities and equity	$	142,240	$	34,427

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

Six Months Ended June 30,
2021 2020
Operating Activities
Net income $ 909 $ 707
Adjustments to reconcile net income to cash provided by operating activities:
Content rights amortization and impairment 1,516 1,355
Depreciation and amortization 702 660
Deferred income taxes (242) (188)
Share-based compensation expense 95 30
Gain on sale of investments (20) 0
Equity in losses of equity method investee companies, including cash distributions 38 71
Loss on extinguishment of debt 4 71
Impairment of goodwill and other intangible assets 0 38
Gain on disposition (72) 0
Other, net (104) 42
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net (141) 122
Content rights and payables, net (1,701) (1,386)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities 41 (174)
Foreign currency, prepaid expenses and other assets, net 78 (22)
Cash provided by operating activities 1,103 1,326
Investing Activities
Purchases of property and equipment (167) (217)
Proceeds from sales and maturities of investments 348 65
Investments in and advances to equity investments (105) (81)
Other investing activities, net 120 79
Cash provided by (used in) investing activities 196 (154)
Financing Activities
Principal repayments of debt, including premiums to par value and discount payment (339) (2,164)
Borrowings from debt, net of discount and issuance costs 0 1,979
Distributions to noncontrolling interests and redeemable noncontrolling interests (213) (202)
Repurchases of stock 0 (527)
Purchase of redeemable noncontrolling interests (31) 0
Principal repayments of revolving credit facility 0 (500)
Borrowings under revolving credit facility 0 500
Other financing activities, net 45 (84)
Cash used in financing activities (538) (998)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (49) 12
Net change in cash, cash equivalents, and restricted cash 712 186
Cash, cash equivalents, and restricted cash, beginning of period 2,122 1,552
Cash, cash equivalents, and restricted cash, end of period $ 2,834 $ 1,738
The accompanying notes are an integral part of these consolidated financial statements.


	Six Months Ended June 30,
	2022		2021
Operating Activities
Net (loss) income	$	(2,933)	$	909
Adjustments to reconcile net income to cash provided by operating activities:
Content rights amortization and impairment	6,591		1,516
Depreciation and amortization	2,791		702
Deferred income taxes	(915)		(242)
Preferred stock conversion premium	789		—
Share-based compensation expense	210		95
Gain on disposition	4		(72)
Equity in losses of equity method investee companies and cash distributions	91		38
Gain on sale of investments	(132)		(20)


Gain from derivative instruments, net	(496)		—
Other, net	60		(100)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net	(444)		(141)
Film and television content rights, games and payables, net	(4,653)		(1,701)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	8		41
Foreign currency, prepaid expenses and other assets, net	363		78
Cash provided by operating activities	1,334		1,103
Investing Activities
Purchases of property and equipment	(307)		(167)
Cash acquired from business acquisition	2,419		—
Proceeds from sales and maturities of investments	139		348
Investments in and advances to equity investments	(109)		(105)
Proceeds from derivative instruments, net	720		—




Other investing activities, net	18		120
Cash provided by investing activities	2,880		196
Financing Activities
Principal repayments of term loans	(3,500)		—
Principal repayments of debt, including premiums to par value	(327)		(339)

Distributions to noncontrolling interests and redeemable noncontrolling interests	(264)		(213)
Purchase of redeemable noncontrolling interests	—		(31)






Borrowings under commercial paper program	90		—
Repayments under commercial paper program	(90)		—


Other financing activities, net	(66)		45
Cash used in financing activities	(4,157)		(538)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(66)		(49)
Net change in cash, cash equivalents, and restricted cash	(9)		712
Cash, cash equivalents, and restricted cash, beginning of period	3,905		2,122
Cash, cash equivalents, and restricted cash, end of period	$	3,896	$	2,834

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)


		Preferred Stock			Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Discovery, Inc. Stockholders’ Equity		Noncontrolling Interests			Total Equity				Discovery, Inc. Preferred Stock					Discovery, Inc. Common Stock						Warner Bros. Discovery, Inc. Common Stock						Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Warner Bros. Discovery, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Equity
		Shares	Par Value		Shares	Par Value																			Shares			Par Value		Shares			Par Value			Shares			Par Value
December 31, 2020		13	$	0	717	$	7	$	10,809	$	(8,244)	$	8,543	$	(651)	$	10,464	$	1,536		$	12,000
December 31, 2021																				December 31, 2021				12		$	—		736		$	7		$	—		$	—		$	11,086		$	(8,244)		$	9,580		$	(830)		$	11,599		$	1,434		$	13,033

Net income available to Discovery, Inc. and attributable to noncontrolling interests		—	—		—	—		—		—		140		—		140		46			186
Other comprehensive income		—	—		—	—		—		—		—		70		70		—			70
Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests																				Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests				—		—			—		—			—			—			—			—			456			—			456			16			472
Other comprehensive loss																				Other comprehensive loss				—		—			—		—			—			—			—			—			—			(117)			(117)			—			(117)
Share-based compensation	Share-based compensation	—	—		—	—		32		—		—		—		32		—			32		Share-based compensation		—			—		—			—			—			—			53			—			—			—			53			—			53

Preferred stock conversion		(1)	—		11	—		—		—		—		—		—		—			0

Tax settlements associated with share-based plans		—	—		—	—		(68)		—		—		—		(68)		—			(68)
Dividends paid to noncontrolling interests		—	—		—	—		—		—		—		—		—		(178)			(178)
Issuance of stock in connection with share-based plans		—	—		8	—		186		—		—		—		186		—			186
Redeemable noncontrolling interest adjustments to redemption value		—	—		—	—		(8)		—		(1)		—		(9)		—			(9)

March 31, 2021		12	$	0	736	$	7	$	10,951	$	(8,244)	$	8,682	$	(581)	$	10,815	$	1,404		$	12,219

Net income available to Discovery, Inc. and attributable to noncontrolling interests		—	—		—	—		—		—		672		—		672		38			710
Other comprehensive loss		—	—		—	—		—		—		—		(4)		(4)		—			(4)
Share-based compensation		—	—		—	—		41		—		—		—		41		—			41

Tax settlements associated with share-based plans	Tax settlements associated with share-based plans	—	—		—	—		(1)		—		—		—		(1)		—			(1)		Tax settlements associated with share-based plans		—			—		—			—			—			—			(38)			—			—			—			(38)			—			(38)
Dividends paid to noncontrolling interests	Dividends paid to noncontrolling interests	—	—		—	—		—		—		—		—		—		(29)			(29)		Dividends paid to noncontrolling interests		—			—		—			—			—			—			—			—			—			—			—			(192)			(192)
Issuance of stock in connection with share-based plans	Issuance of stock in connection with share-based plans	—	—		—	—		9		—		—		—		9		—			9		Issuance of stock in connection with share-based plans		—			—		3			—			—			—			19			—			—			—			19			—			19
Redeemable noncontrolling interest adjustments to redemption value	Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—		—		6		—		6		—			6		Redeemable noncontrolling interest adjustments to redemption value		—			—		—			—			—			—			—			—			(3)			—			(3)			—			(3)

June 30, 2021		12	$	0	736	$	7	$	11,000	$	(8,244)	$	9,360	$	(585)	$	11,538	$	1,413		$	12,951
March 31, 2022																				March 31, 2022				12		$	—		739		$	7		—			$	—		$	11,120		$	(8,244)		$	10,033		$	(947)		$	11,969		$	1,258		$	13,227

Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests																				Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests				—		—			—		—			—			—			—			—			(3,418)			—			(3,418)			7			(3,411)
Other comprehensive loss																				Other comprehensive loss				—		—			—		—			—			—			—			—			—			(506)			(506)			—			(506)
Share-based compensation																				Share-based compensation				—		—			—		—			—			—			143			—			—			—			143			—			143

Conversion and issuance of common stock and noncontrolling interest in connection with the acquisition of the WarnerMedia Business																				Conversion and issuance of common stock and noncontrolling interest in connection with the acquisition of the WarnerMedia Business				(12)		—			(739)		(7)			2,658			27			43,173			—			—			—			43,193			2			43,195

Dividends paid to noncontrolling interests																				Dividends paid to noncontrolling interests				—		—			—		—			—			—			—			—			—			—			—			(31)			(31)
Issuance of stock in connection with share-based plans																				Issuance of stock in connection with share-based plans				—		—			—		—			—			—			3			—			—			—			3			—			3
Redeemable noncontrolling interest adjustments to redemption value																				Redeemable noncontrolling interest adjustments to redemption value				—		—			—		—			—			—			—			—			(1)			—			(1)			—			(1)

June 30, 2022																				June 30, 2022				—		$	—		—		$	—		2,658			$	27		$	54,439		$	(8,244)		$	6,614		$	(1,453)		$	51,383		$	1,236		$	52,619

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.																			The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)


		Preferred Stock			Common Stock			Additional Paid-In Capital				Treasury Stock		Retained Earnings				Accumulated Other Comprehensive Loss				Discovery, Inc. Stockholders’ Equity				Noncontrolling Interests			Total Equity						Discovery, Inc. Preferred Stock								Discovery, Inc. Common Stock						Additional Paid-In Capital				Treasury Stock					Retained Earnings					Accumulated Other Comprehensive Loss					Warner Bros. Discovery, Inc. Stockholders’ Equity					Noncontrolling Interests					Total Equity
		Shares	Par Value		Shares	Par Value																		Shares							Par Value					Shares					Par Value
December 31, 2019		13	$	0	715	$	7			$	10,747					$	(7,374)			$	7,333				$	(822)		$	9,891				$	1,633				$	11,524
Cumulative effect of accounting change		—	—		—	—		—				—		2				—				2				—			2
December 31, 2020																												December 31, 2020				13					$	—				717		$	7		$	10,809			$	(8,244)				$	8,543				$	(651)				$	10,464				$	1,536				$	12,000

Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests																												Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests				—					—					—		—			—			—				140					—					140					46					186
Other comprehensive income																												Other comprehensive income				—					—					—		—			—			—				—					70					70					—					70
Share-based compensation																												Share-based compensation				—					—					—		—			32			—				—					—					32					—					32

Preferred stock conversion																												Preferred stock conversion				(1)					—					11		—			—			—				—					—					—					—					—

Tax settlements associated with share-based compensation																												Tax settlements associated with share-based compensation				—					—					—		—			(68)			—				—					—					(68)					—					(68)
Dividends paid to noncontrolling interest																												Dividends paid to noncontrolling interest				—					—					—		—			—			—				—					—					—					(178)					(178)
Issuance of stock in connection with share-based plans																												Issuance of stock in connection with share-based plans				—					—					8		—			186			—				—					—					186					—					186
Redeemable noncontrolling interest adjustment to redemptions value																												Redeemable noncontrolling interest adjustment to redemptions value				—					—					—		—			(8)			—				(1)					—					(9)					—					(9)

March 31, 2021																												March 31, 2021				12					$	—				736		$	7		$	10,951		$	(8,244)			$	8,682				$	(581)				$	10,815				$	1,404				$	12,219

Net income available to Discovery, Inc. and attributable to noncontrolling interests	Net income available to Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—				—		377				—				377				28			405		Net income available to Discovery, Inc. and attributable to noncontrolling interests				—					—			—			—			—				—					672					—					672					38					710
Other comprehensive loss		—	—		—	—		—				—		—				(300)				(300)				—			(300)
Other comprehensive income																												Other comprehensive income				—					—					—		—			—			—				—					(4)					(4)					—					(4)
Share-based compensation	Share-based compensation	—	—		—	—		21				—		—				—				21				—			21		Share-based compensation				—					—			—			—			41				—					—					—					41					—					41
Repurchases of stock		—	—		—	—		—				(523)		—				—				(523)				—			(523)

Tax settlements associated with share-based plans	Tax settlements associated with share-based plans	—	—		—	—		(30)				—		—				—				(30)				—			(30)		Tax settlements associated with share-based plans				—					—			—			—			(1)				—					—					—					(1)					—					(1)
Dividends paid to noncontrolling interests	Dividends paid to noncontrolling interests	—	—		—	—		—				—		—				—				—				(170)			(170)		Dividends paid to noncontrolling interests				—					—			—			—			—				—					—					—					—					(29)					(29)
Issuance of stock in connection with share-based plans	Issuance of stock in connection with share-based plans	—	—		1	—		32				—		—				—				32				—			32		Issuance of stock in connection with share-based plans				—					—			—			—			9				—					—					—					9					—					9
Redeemable noncontrolling interest adjustments to redemption value																												Redeemable noncontrolling interest adjustments to redemption value				—					—					—		—			—			—				6					—					6					—					6

Other adjustments to stockholders' equity		—	—		—	—		—				—		—				—				—				1			1

March 31, 2020		13	$	0	716	$	7	$	10,770			$	(7,897)	$	7,712			$	(1,122)			$	9,470			$	1,492		$	10,962
Cumulative effect of accounting changes of an equity method investee		—	—		—	—		—				—		(3)				—				(3)				—			(3)
Net income available to Discovery, Inc. and attributable to noncontrolling interests		—	—		—	—		—				—		271				—				271				25			296
Other comprehensive income		—	—		—	—		—				—		—				101				101				—			101
June 30, 2021																												June 30, 2021				12					$	—				736		$	7		$	11,000		$	(8,244)			$	9,360				$	(585)				$	11,538				$	1,413				$	12,951

Share-based compensation		—	—		—	—		25				—		—				—				25				—			25
Tax settlements associated with share-based plans		—	—		—	—		(1)				—		—				—				(1)				—			(1)
Dividends paid to noncontrolling interests		—	—		—	—		—				—		—				—				—				(27)			(27)
Issuance of stock in connection with share-based plans		—	—		—	—		2				—		—				—				2				—			2

Other adjustments to stockholders' equity		—	—		—	—		2				—		—				—				2				1			3
June 30, 2020		13	$	0	716	$	7	$	10,798			$	(7,897)	$	7,980			$	(1,021)			$	9,867			$	1,491		$	11,358

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.																											The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Warner Bros. Discovery, Inc. (“Warner Bros. Discovery”, “WBD”, the “Company”, ~~"we"~~“we”, ~~"us"~~“us” or ~~"our"~~“our”) is a leading global media and entertainment company that ~~provides~~creates and distributes the world’s most differentiated and complete portfolio of content and brands across ~~multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"~~television, film and streaming. Available in more than 220 countries and territories and 50 languages, Warner Bros. Discovery inspires, informs and entertains audiences worldwide through its iconic brands and products including: Discovery Channel, discovery+, CNN, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, Warner Bros. Television, Warner Bros. Games, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV and others.

Merger with the WarnerMedia Business of AT&T

On April 8, 2022 (the “Closing Date”), ~~free-to-air~~Discovery, Inc. (“Discovery”) completed its merger (the “Merger”) with the WarnerMedia business (the “WarnerMedia Business”, “WM Business” or “WM”) of AT&T Inc. (“AT&T”) and ~~broadcast television, authenticated GO applications, digital~~changed its name to “Warner Bros. Discovery, Inc.”. On April 11, 2022, the Company’s shares started trading on the Nasdaq Global Select Market (the “Nasdaq”) under the trading symbol WBD.

The Merger was executed through a Reverse Morris Trust type transaction, under which WM was distributed to AT&T’s shareholders via a pro rata distribution, ~~arrangements, content licensing arrangements~~ and ~~direct-to-consumer ("DTC"~~immediately thereafter, combined with Discovery. (See Note 3.) ~~subscription products. During~~Prior to the ~~fourth~~Merger, WarnerMedia Holdings, Inc. distributed $40.5 billion to AT&T (subject to working capital and other adjustments) in a combination of cash, debt securities, and WM's retention of certain debt. Discovery transferred purchase consideration of $42.4 billion in equity to AT&T shareholders. In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, pursuant to section 1.3 of the Separation and Distribution Agreement, which will result in the Company receiving a $1.2 billion payment from AT&T in the third quarter of ~~2020,~~2022, which is recorded in prepaid expenses and other current assets on the consolidated balance sheets at June 30, 2022. AT&T shareholders received shares of WBD Series A common stock (“WBD common stock”) in the distribution representing 71% of the combined company and the Company's pre-Merger shareholders continued to own 29% of the combined company, in each case on a fully diluted basis.

Discovery was deemed to be the accounting acquirer of the WM Business for accounting purposes under U.S. generally accepted accounting principles (“U.S. GAAP”); therefore, Discovery is considered WBD’s predecessor and the historical financial statements of Discovery prior to April 8, 2022, are reflected in this Quarterly Report on Form 10-Q as WBD’s historical financial statements. Accordingly, the financial results of WBD as of and for any periods prior to April 8, 2022 do not include the financial results of the WM Business and current and future results will not be comparable to historical results.

Segments

In conjunction with the Merger, the Company ~~announced~~reevaluated and changed its segment presentation during the ~~global launch of its aggregated DTC product, discovery+, and in January 2021, the Company launched discovery+~~quarter ended June 30, 2022.Accordingly, beginning in the ~~U.S. across several~~quarter ended June 30, 2022, and for all periods presented, we are reporting results based on the following segments:

Studios - Our Studios segment primarily consists of the production and release of feature films for initial exhibition in theaters, production and initial licensing of television programs to third parties and our networks/DTC services, distribution of our films and television programs to various third party and internal television and streaming ~~platforms. The Company also operates production studios. The Company has organized its operations into 2 reportable segments: U.S.~~services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming.

Networks - Our Networks ~~consisting principally~~segment primarily consists of our domestic ~~television networks~~ and ~~digital content services, and International Networks, consisting primarily of~~ international television ~~networks~~networks.

Direct-to-consumer (“DTC”) - Our DTC segment primarily consists of our premium pay TV and digital content services.

Impact of COVID-19

The Company continues to closely monitor the ongoing impact of COVID-19 on all aspects of its business and geographies, including the impact on its customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties. Certain key sources of revenue for the Studios segment, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The nature and full extent of COVID-19’s effects on our operations and results are not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future variants or surges of COVID-19, vaccine distribution and efficacy and other actions to contain the virus or treat its impact, among others. The consolidated financial statements reflect management’s estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

Principles of Consolidation ~~and Basis of Presentation~~

The consolidated financial statements include the accounts of ~~Discovery~~the Company and its majority-owned subsidiaries in which a controlling interest is maintained, including variable interest entities ~~("VIE"~~(“VIE”) for which the Company is the primary beneficiary. Intercompany accounts and transactions between consolidated entities have been eliminated.

Unaudited Interim Financial Statements

These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. ~~generally accepted accounting principles (“GAAP”)~~GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in ~~Discovery’s~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Form 10-K”).

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.

Significant estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, estimated credit losses, content rights, leases, depreciation and amortization, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, estimated defined benefit plan liabilities, and the determination of whether the Company should consolidate certain entities.

~~Impact~~Summary of ~~COVID-19~~Significant Accounting Policies

~~On March 11, 2020,~~There have been no changes to the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain. The Company continues to closely monitor the impact of COVID-19 on all aspects of its business and geographies, including the impact on its customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties.

~~Beginning~~Company's significant accounting policies described in the ~~second quarter of 2020, demand for the Company’s advertising products and services decreased due~~2021 Form 10-K, other than updates to economic disruptions from limitations on social and commercial activity. These economic disruptions and the resulting effect on the Company eased during the second half of 2020. The Company currently does not expect the pandemic will have a significant impact on demand during fiscal year 2021. Many of the Company’s third-party production partners that were shut down during most of the second quarter of 2020 due to COVID-19 restrictions came back online in the third quarter of 2020 and,policies as a result ~~the Company has incurred additional costs to comply with various governmental regulations and implement certain safety measures for the Company's employees, talent, and partners.~~Additionally, certain sporting events that the Company has rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which were rescheduled to July and August 2021. The postponement of the ~~Olympic Games deferred both Olympic-related~~Merger as described below.

Film and Television Content Rights

The Company groups its film and television content rights by monetization strategy. For films and television programs predominantly monetized individually, the amount of capitalized film and television production costs and the amount of participations and residuals to be recognized as expense in a particular period are determined using the individual film forecast method. Under this method, the amortization of capitalized costs and the accrual of participations and residuals are based on the proportion of the film’s or television program’s revenues recognized for such period to the film’s or television program’s estimated remaining ultimate revenues (i.e., the total revenue to be received throughout a film’s or television program’s remaining life cycle).

The process of estimating ultimate revenues requires us to make a series of judgments related to future revenue-generating activities associated with a particular film. Prior to the theatrical release of a film, our estimates are based on factors such as the historical performance of similar films, the star power of the lead actors, the rating and ~~significant expenses~~genre of the film, pre-release market research (including test market screenings), international distribution plans and the expected number of theaters in which the film will be released. Subsequent to release, ultimate revenues are updated to reflect initial performance, which is often predictive of future performance. For a film or television program that is predominantly monetized on its own but also monetized with other films and/or programs (such as our DTC or linear services), we make a reasonable estimate of the value attributable to the film or program’s exploitation while monetized with other films/programs and expense such costs as the film or television program is exhibited. For theatrical films, the period over which ultimate revenues from all applicable sources and exhibition windows are estimated does not exceed 10 years from the date of the film’s initial release. For television programs, the ultimate period does not exceed 10 years from delivery of the first episode, or, if still in production, five years from delivery of the most recent episode, if later. Ultimates for produced content monetized on an individual basis are reviewed and updated (as applicable) on a quarterly basis; any adjustments are applied prospectively as of the beginning of the fiscal year ~~2020 to fiscal year 2021.~~of the change.

1011

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

For programs monetized as a group, including licensed programming, the Company’s film groups are generally aligned along the Company’s networks and digital content offerings, except for certain international territories wherein content assets are shared across the various networks in the territory and therefore, the territory is the film group. Amortization expense for each period is generally based on the revenue forecast model, which approximates the proportion that estimated distribution and advertising revenues for the current period represent in relation to the estimated remaining total lifetime revenues. Digital content and premium pay TV amortization for each period is recognized based on estimated viewing patterns as there are generally no direct revenues to associate to the individual content assets and therefore number of views is most representative of the use of the title. Licensed rights to film and television programming are typically amortized over the useful life of the program’s license period on a straight-line basis (or per-play basis, if greater, for certain programming on our ad-supported networks), or accelerated basis for licensed original programs.

Quarterly, the Company prepares analyses to support its content amortization expense. Critical assumptions used in determining content amortization for programming predominately monetized as a group include: (i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or viewership model based on the adequacy of historical data, (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the forecast model, and (iv) incorporating secondary streams. The Company then considers the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends. Content use and future revenues may differ from estimates based on changes in expectations related to market acceptance, network affiliate fee rates, advertising demand, the number of cable and satellite television subscribers receiving the Company’s networks, the number of subscribers to its digital services, and program usage. Accordingly, the Company continually reviews its estimates and planned usage and revises its assumptions if necessary. Any material adjustments from the Company’s review of the amortization rates for assets in film groups are applied prospectively in the period of the change.

Unamortized film costs are tested for impairment whenever events or changes in circumstances indicate that the fair value of a film (or television program) predominately monetized on its own, or a film group, may be less than its unamortized costs. In addition, a change in the predominant monetization strategy is considered a triggering event for impairment testing before a title is accounted for as part of a film group. If the carrying value of an individual feature film or television program, or film group, exceeds the estimated fair value, an impairment charge will be recorded in the amount of the difference. For content that is predominately monetized individually, we utilize estimates including ultimate revenues and additional costs to be incurred (including exploitation and participation costs), in order to determine whether the carrying value of a film or television program is impaired.

Game development costs are expensed as incurred before the applicable games reach technological feasibility, or for online hosted arrangements, before the preliminary project phase is complete and it is probable the project will be completed and the software will be used to perform the function intended. Upon release, the capitalized game development costs are amortized based on the proportion of the game’s revenues recognized for such period to the game’s total current and anticipated revenues. Unamortized capitalized game production and development costs are stated at the lower of cost, less accumulated amortization, or net realizable value and reported in “Film and television content rights and games, net” on the consolidated balance sheets.

Inventory

Inventory is comprised primarily of DVDs, Blu-ray Discs and game units and is stated at the lower of cost or net realizable value in prepaid expenses and other current assets on the consolidated balance sheets. Cost is determined using the average cost method for the majority of our inventory, with the remaining inventory valued using the standard cost method, which approximates average cost. Returned goods included in inventory are valued at estimated realizable value, but not in excess of cost. The Company periodically reviews its inventory for excess and obsolete inventory. The Company's inventory consisted of the following (in millions).


	June 30, 2022		December 31, 2021
Raw materials	$	6	$	—
Work in process	6		—
Finished goods	127		1
Total inventory	$	139	$	1

Defined Benefit Plan

The Company maintains a defined benefit pension plan covering certain employees. Defined benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations.

WARNER BROS. DISCOVERY, INC.

In response to the impact of the pandemic, the Company employed and continues to employ innovative production and programming strategies, including producing content filmed by its on-air talent and seeking viewer feedback on which content to air. The Company continues to pursue a number of cost savings initiatives, which began during the third quarter of 2020 through the implementation of travel, marketing, production and other operating cost reductions, including personnel reductions, restructurings and resource reallocations to align its expense structure to ongoing changes within the industry.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The nature and full extent of COVID-19’s effects on the Company’s operations and results is not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others. The Company will continue to monitor COVID-19 and its impact on the Company’s business results and financial condition. These consolidated financial statements reflect management’s latest estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.(unaudited)

Accounting and Reporting Pronouncements ~~Not Yet~~ Adopted

LIBOR

In March 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued guidance providing optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate ~~(LIBOR)~~ and other interbank offered rates to alternative reference rates. The guidance is for March 12, 2020 through December 31, 2022 and may not be applied to contract modifications made and hedging relationships entered into or evaluated after December 31, ~~2022, with a few exceptions for certain hedging relationships existing as of December 31,~~ 2022. The Company ~~is currently assessing~~applied the ~~impact this~~relevant provisions of the guidance ~~would have on its consolidated financial statements and related disclosures, if elected.~~to hedge relationships that were subsequently terminated in the first quarter of 2022.

Convertible Instruments

In August 2020, the FASB issued guidance simplifying the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This guidance amends the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance. The Company adopted the guidance effective January 1, 2022, and there was no material impact on its consolidated financial statements.

Accounting and Reporting Pronouncements Not Adopted

Government Assistance

In November 2021, the FASB issued guidance requiring disclosure for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other guidance. The annual disclosures include terms and conditions, accounting treatment and impacted financial statement lines reflecting the impact of the transactions. The guidance is effective for ~~interim and~~ annual periods beginning after December 15, 2021. The Company is currently assessing the impact this guidance will have on its consolidated financial statements and related disclosures.

NOTE 2. EQUITY AND EARNINGS PER SHARE

Common Stock Issued in Connection with the WarnerMedia Merger

In connection with the Merger, each issued and outstanding share of Discovery Series A common stock, Discovery Series B common stock, and Discovery Series C common stock, was reclassified and automatically converted into 1 share of WBD common stock, and each issued and outstanding share of Discovery Series A-1 convertible preferred stock (“Series A-1 Preferred Stock”) and Series C-1 convertible preferred stock was reclassified and automatically converted into 13.1135 and 19.3648 shares of WBD common stock, respectively.

The Merger required the consent of Advance/Newhouse Programming Partnership under Discovery's certificate of incorporation as the sole holder of the Series A-1 Preferred Stock. In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of the significant rights attached to the Series A-1 Preferred Stock in the reclassification of the shares of Series A-1 Preferred Stock into common stock, it received an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock converted. The impact of the issuance of such additional shares of common stock was $789 million and was recorded as a transaction expense in selling, general and administrative expense upon the closing of the Merger.

On April 8, 2022, the Company issued 1.7 billion shares of WBD Series A common stock as consideration paid for the acquisition of WM. (See Note 3).

Earnings Per Share

All share and per share amounts have been retrospectively adjusted to reflect the reclassification and automatic conversion into WBD common stock, except for Series A-1 Preferred Stock, which has not been recast because the conversion of Series A-1 Preferred Stock into WBD common stock in connection with the Merger was considered a discrete event and treated prospectively.

The table below sets forth the Company's calculated earnings per share. Earnings per share amounts may not recalculate due to rounding.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net (loss) income	$	(3,408)	$	718	$	(2,933)	$	909
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock	—		(72)		(49)		(87)
Net income attributable to noncontrolling interests	(7)		(38)		(23)		(84)
Net income attributable to redeemable noncontrolling interests	(3)		(8)		(6)		(13)

Net (loss) income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted net income per share	$	(3,418)	$	600	$	(3,011)	$	725

Add:
Allocation of undistributed income to Series A-1 convertible preferred stockholders	$	—	$	72	$	—	$	87
Net (loss) income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for diluted net income per share	$	(3,418)	$	672	$	(3,011)	$	812

Denominator — weighted average:
Common shares outstanding — basic	2,286		589		1,443		587
Impact of assumed preferred stock conversion	—		71		—		71
Dilutive effect of share-based awards	—		4		—		8
Common shares outstanding — diluted	2,286		664		1,443		666

Basic net (loss) income per share allocated to common stockholders	$	(1.50)	$	1.02	$	(2.09)	$	1.23
Diluted net (loss) income per share allocated to common stockholders	$	(1.50)	$	1.01	$	(2.09)	$	1.22

The table below presents the details of share-based awards that were excluded from the calculation of diluted earnings per share (in millions).


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Anti-dilutive share-based awards	57	16	45	6

NOTE 2.3. ACQUISITIONS AND DISPOSITIONS

Acquisitions

WarnerMedia

~~In May 2021,~~On April 8, 2022, the Company ~~entered into an agreement with AT&T Inc. to combine WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets~~completed its Merger with the ~~Company's nonfiction and international entertainment and sports businesses to create a standalone, global entertainment company.~~

WarnerMedia Business of AT&T. The ~~proposed combination transaction will be~~Merger was executed through a Reverse Morris Trust type transaction, under which ~~WarnerMedia will be~~WM was distributed to AT&T’s shareholders via a ~~pro rata dividend or through an exchange offer or a combination of both~~pro-rata distribution, and immediately thereafter, combined with Discovery. Discovery was deemed to be the ~~Company. In connection~~accounting acquirer of WM.

The Merger combined WM’s content library of popular and valuable intellectual property with ~~the combination transaction, AT&T will receive $43 billion (subject to adjustment) in a combination~~Discovery’s global footprint, collection of ~~cash, debt securities~~local-language content and ~~WarnerMedia’s retention of certain debt.~~deep regional expertise across more than 220 countries and territories. The Company ~~is in~~expects this broad, worldwide portfolio of brands, coupled with its DTC potential and the ~~process of establishing an interest rate derivative program to mitigate interest rate risk associated with the anticipated issuance of future fixed-rate debt.~~

~~Upon closing, all shares of Series A, Series B, and Series C common stock and Series A-1 and Series C-1 convertible preferred stock will be reclassified and converted to one class~~attractiveness of the ~~Company's common stock. AT&T’s shareholders will receive stock representing 71% of~~combined assets, to result in increased market penetration globally. The Merger is also expected to create significant cost synergies for the ~~new company and the Company's shareholders will own 29% of the new company. The Boards of Directors of both AT&T and the Company have approved the transaction.~~Company.

1114

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Purchase Price

The following table summarizes the components of the aggregate purchase consideration paid to acquire WM (in millions) and is subject to adjustments.


Fair value of WBD common stock issued to AT&T shareholders (1)	$	42,309
Estimated fair value of share-based compensation awards attributable to pre-combination services (2)	94
Settlement of preexisting relationships (3)	(27)
Preliminary purchase consideration	$	42,376

(1)The fair value of WBD common stock issued to AT&T shareholders represents approximately 1,732 million shares of the Company’s common stock multiplied by the closing share price for Discovery Series A common stock of $24.43 on the Nasdaq on the Closing Date. The number of shares of WBD common stock issued in the Merger was determined based on the number of fully diluted shares of Discovery, Inc. common stock immediately prior to the closing of the Merger, multiplied by the quotient of 71%/29%.

(2)This amount represents the value of AT&T restricted stock unit awards that were not vested and were replaced by WBD restricted stock unit awards with similar terms and conditions as the original AT&T awards. The conversion was based on the ratio of the volume-weighted average per share closing price of AT&T common stock on the 10 trading days prior to the Closing Date and the volume-weighted average per share closing price of WBD common stock on the 10 trading days following the Closing Date. The fair value of replacement equity-based awards attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger. See Note 14 for additional information.

(3)The amount represents the effective settlement of outstanding payables and receivables between the Company and WM. No gain or loss was recognized upon settlement as amounts were determined to be reflective of fair market value.

Balances reflect rounding of dollar and share amounts to millions, which may result in differences for recalculated standalone amounts compared with the amounts presented above.

Preliminary Purchase Price Allocation

The Company applied the acquisition method of accounting to WM, whereby the excess of the fair value of the purchase price paid over the fair value of identifiable net assets acquired and liabilities assumed was allocated to goodwill. Goodwill reflects the assembled workforce of WM as well as revenue enhancements, cost savings and operating synergies that are expected to result from the Merger. The goodwill recorded as part of the Merger has been provisionally allocated to the Studios, Networks and DTC reportable segments in the amount of $8,912 million, $7,016 million and $5,585 million, respectively, and is not deductible for tax purposes.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The ~~transaction~~purchase price allocation is ~~anticipated to close in mid-2022,~~preliminary and subject to ~~approval by~~change. The Company is still evaluating the ~~Company's shareholders~~fair value of film and ~~customary closing conditions, including receipt~~television library, intangible assets, and income taxes, in addition to ensuring all other assets and liabilities and contingencies have been identified and recorded. The Company has estimated the preliminary fair value of ~~regulatory approvals. Agreements are~~assets acquired and liabilities assumed based on information currently available and will continue to adjust those estimates as additional information pertaining to events or circumstances present at the Closing Date becomes available during the measurement period. The Company will reflect measurement period adjustments, if any, in ~~place with Dr. John Malone~~the period in which the adjustments occur, and ~~Advance/Newhouse Programming Partnership to vote in favor~~the Company will finalize its accounting for the Merger within one year of the ~~transaction.~~Closing Date. The ~~transaction requires, among~~preliminary allocation of the purchase price to the assets acquired and liabilities assumed, and a reconciliation to total consideration transferred is presented in the table below (in millions).


	Preliminary April 8, 2022
Cash	$	2,419
Accounts receivable	4,224
Other current assets	4,619
Film and television library	28,729
Property and equipment	4,260
Goodwill	21,513
Intangible assets	44,889
Other noncurrent assets	5,206
Current liabilities	(10,544)
Debt assumed	(41,671)
Deferred income taxes	(13,264)
Other noncurrent liabilities	(8,004)
Total consideration paid	$	42,376

The fair values of the assets acquired, and liabilities assumed were preliminarily determined using the income, cost, and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market, such as discounted cash flow analyses, and thus represent a Level 3 measurement. Significant inputs used in the discounted cash flow analyses and other ~~things,~~areas of judgment include (i) historical and projected financial information, (ii) discount rates used to present value future cash flows, (iii) royalty rates, (iv) number of renewals for affiliate contracts, (v) synergies, including cost savings, (vi) tax rates, (vii) economic useful life of assets, and (viii) attrition rates, as relevant, that market participants would consider when estimating fair values. The following are the ~~consent~~preliminary fair value approaches followed:


Category						Valuation Method
Trade names						Relief from royalty method of the income approach
Film and TV content library						Multi-period excess earnings method of the income approach; net book value
Affiliate contracts						Multi-period excess earnings method of the income approach
Franchises						Multi-period excess earnings method of the income approach
Other intangible assets						Multi-period excess earnings method of the income approach
Licensed content						Net book value method
Licensed sports rights						Differential method, a form of the incremental income approach
In-place advertising networks						With-or-without method, a form of the income approach
Subscriber relationships						Replacement cost method of the cost approach
Real estate, property and equipment						Cost approach or the income approach, which estimates the value of property based on the income it generates or the market approach, which determines values based on comparable assets purchased under similar conditions
Current and noncurrent debt assumed comprising existing debt of WM, the Term Loan, and the Notes						Quoted prices for identical or similar securities in active markets

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The table below presents a summary of intangible assets acquired, exclusive of content assets, and the weighted average useful life of these assets.


	Fair Value		Weighted Average Useful Life in Years
Trade names	$	21,084	25
Affiliate, advertising and subscriber relationships	14,700		6
Franchises	7,900		35
Other intangible assets	1,205
Total intangible assets acquired	$	44,889

The Company incurred transaction-related costs of $194 million and $281 million for the three and six months ended June 30, 2022, respectively. These costs were associated with legal and professional services and were recognized as operating expenses on the consolidated statement of operations. Additionally, the expense related to the issuance of additional shares of common stock in connection with the conversion of Advance/Newhouse Programming Partnership under the Company's certificate of incorporation as the sole holder the Series A-1 Preferred Stock. In exchange for Advance/Newhouse Programming Partnership providing its consent to the proposed combination transaction, which will result in the forfeiture of its significant approval rights pursuant to the terms of theProgramming's Series A-1 Preferred Stock was $789 million and reclassification of the shares of Series A-1 Preferred Stock into common stock, it will receive a premium in the form of an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock would be converted. Upon the closing, such premium will bewas recorded as a transaction ~~expense. No vote by AT&T shareholders is required.~~expense in selling, general and administrative expense upon the closing of the Merger. (See Note 2.)

As a result of the Merger, WM's assets, liabilities, and operations were included in the Company's consolidated financial statements from the Closing Date. The ~~merger agreement contains certain customary termination rights for Discovery~~following table presents WM revenue and ~~AT&T, including, without limitation, a right for either party to terminate if~~earnings as reported within the ~~transaction is not completed on or before July 15, 2023. Termination under specified circumstances will require Discovery to pay AT&T a termination fee~~consolidated financial statements (in millions).


	Three and Six Months Ended June 30, 2022
Revenues:
Advertising	$	1,163
Distribution	3,526
Content	2,835
Other	208
Total revenues	$	7,732
Net loss available to Warner Bros. Discovery, Inc.	$	(2,911)

Pro Forma Combined Financial Information

The following unaudited pro forma combined financial information presents the combined results of ~~$720 million or AT&T to pay Discovery a termination fee of $1.8 billion.~~

~~In anticipation of this combination, in June 2021, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan that will be guaranteed by~~ the Company and ~~certain material subsidiaries~~WM as if the Merger had been completed on January 1, 2021. The unaudited pro forma combined financial information is presented for informational purposes and is not indicative of the ~~Company upon closing~~results of operations that would have been achieved if the Merger had occurred on January 1, 2021, nor is it indicative of future results. The following table presents the Company's pro forma combined revenues and net income (in millions).


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Revenues	$	10,823	$	11,211	$	22,264	$	21,933
Net loss available to Warner Bros. Discovery, Inc.	(2,151)		(341)		(2,437)		(1,912)

The unaudited pro forma combined financial information includes, where applicable, adjustments for (i) additional costs of revenues from the fair value step up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments. These pro forma adjustments are based on available information as of the ~~transaction.~~date hereof and upon assumptions that the Company believes are reasonable to reflect the impact of the Merger with WM on the Company's historical financial information on a supplemental pro forma basis. Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business.

~~Other~~

~~During 2020 and 2021, we completed other immaterial acquisitions.~~WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Dispositions

~~Great American Country~~In April 2022, the Company completed the sale of its minority interest in Discovery Education for a sale price of $138 million and recorded a gain of $133 million.

In June 2021, the Company completed the sale of its Great American Country network to Hicks Equity Partners for a sale price of $90 ~~million. The Company~~million and recorded a gain of $76 million.

NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows (in millions).


	U.S. Networks		International Networks		Studios		Networks		DTC		Total





December 31, 2021	$	10,813	$	2,099	$	—	$	—	$	—	$	12,912
Segment recast (See Note 20)	(10,813)		(2,059)		—		10,555		2,317		—
Acquisitions (See Note 3)	—		—		8,912		7,016		5,585		21,513


Foreign currency translation and other	—		(40)		—		(92)		(20)		(152)
June 30, 2022	$	—	$	—	$	8,912	$	17,479	$	7,882	$	34,273

The carrying amount of goodwill at the Networks segment included accumulated impairments of $1.6 billion as of June 30, 2022 and December 31, 2021. The carrying amount of goodwill at the Studios and DTC segments did not include any accumulated impairments as of June 30, 2022 and December 31, 2021.

Intangible Assets

Finite-lived intangible assets consisted of the following (in millions, except years).


	Weighted Average Amortization Period (Years)	June 30, 2022						December 31, 2021
		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Intangible assets subject to amortization:
Trademarks and trade names	32	$	22,918	$	(1,064)	$	21,854	$	1,716	$	(858)	$	858
Customer relationships	8	24,029		(6,307)		17,722		9,433		(4,303)		5,130
Franchises	35	7,900		(51)		7,849		—		—		—
Character rights	14	995		(16)		979		—		—		—
Other	6	569		(249)		320		395		(227)		168
Total		$	56,411	$	(7,687)	$	48,724	$	11,544	$	(5,388)	$	6,156

Amortization expense relating to finite-lived intangible assets was $2,004 million ~~based on net~~and $268 million for the three months ended June 30, 2022 and 2021, respectively, and $2,439 million and $548 million for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense relating to intangible assets ~~disposed~~subject to amortization for each of ~~$14 million.~~the next five years and thereafter is estimated to be as follows (in millions).


	Remaining 2022		2023		2024		2025		2026		Thereafter
Amortization expense	$	3,790	$	6,497	$	4,976	$	3,600	$	2,590	$	27,271

Indefinite-lived intangible assets not subject to amortization (in millions):


	June 30, 2022		December 31, 2021
Trademarks	$	—	$	161

1218

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Impairment Analysis

During the second quarter of 2022, the Company performed a qualitative goodwill impairment assessment for all reporting units in conjunction with the change in its segment presentation, and determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values; therefore, no quantitative goodwill impairment analysis was performed.

NOTE 5. RESTRUCTURING AND OTHER CHARGES

Restructuring and other charges by reportable segments and corporate were as follows (in millions).


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Studios	$	200	$	—	$	200	$	—
Networks	308		7		312		21
DTC	475		—		475		1
Corporate	50		—		51		—
Total restructuring and other charges	$	1,033	$	7	$	1,038	$	22

Restructuring charges include content impairments of $496 million, employee terminations of $208 million, and content development write-offs of $329 million for the three months ended June 30, 2022. Content impairments and development write-offs resulted from a global strategic review of content following the Merger. Employee terminations relate to cost reduction efforts and management changes. These charges resulted from activities to integrate WM and establish an efficient cost structure.

Changes in restructuring and other liabilities recorded in accrued liabilities by major category and by reportable segment and corporate were as follows (in millions).


	U.S. Networks		International Networks		Studios		Networks		DTC		Corporate		Total
December 31, 2021	$	4	$	13	$	—	$	—	$	—	$	2	$	19
Segment recast (See Note 20)	(4)		(13)		—		15		—		2		—
Acquisitions (See Note 3)	—		—		40		—		14		55		109

Employee termination accruals, net	—		—		54		16		13		126		209

Cash paid	—		—		(10)		(6)		(3)		(15)		(34)
June 30, 2022	$	—	$	—	$	84	$	25	$	24	$	170	$	303

NOTE 6. REVENUES

The following table presents the Company’s revenues disaggregated by revenue source (in millions).


	Three Months Ended June 30, 2022
	Studios		Networks		DTC		Corporate		Total
Revenues:
Advertising	$	10	$	2,624	$	96	$	(9)	$	2,721
Distribution	4		2,841		1,993		—		4,838
Content	2,636		220		132		(924)		2,064
Other	146		57		4		(3)		204
Total	$	2,796	$	5,742	$	2,225	$	(936)	$	9,827

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Three Months Ended June 30, 2021
	Studios		Networks		DTC		Corporate		Total
Revenues:
Advertising	$	—	$	1,601	$	33	$	—	$	1,634
Distribution	—		1,132		180		—		1,312
Content	2		96		2		—		100
Other	—		15		1		—		16
Total	$	2	$	2,844	$	216	$	—	$	3,062


	Six Months Ended June 30, 2022
	Studios		Networks		DTC		Corporate		Total
Revenues:
Advertising	$	10	$	4,054	$	142	$	(9)	$	4,197
Distribution	4		3,961		2,225		—		6,190
Content	2,641		536		134		(924)		2,387
Other	146		64		5		(3)		212
Total	$	2,801	$	8,615	$	2,506	$	(936)	$	12,986


	Six Months Ended June 30, 2021
	Studios		Networks		DTC		Corporate		Total
Revenues:
Advertising	$	—	$	2,993	$	50	$	—	$	3,043
Distribution	—		2,281		289		—		2,570
Content	7		202		3		—		212
Other	—		28		1		—		29
Total	$	7	$	5,504	$	343	$	—	$	5,854

Reserves for Credit Losses

Reserves for accounts receivable reflect expected credit losses, which are estimated based on historical experience, as well as current and expected economic conditions and industry trends. The allowance for credit losses was $138 million at June 30, 2022 and $54 million at December 31, 2021. The increase was primarily attributable to the acquisition of existing WM receivables in the Merger with WM. The corresponding expense for the expected credit losses is reflected in selling, general and administrative expenses.

Contract Assets and Liabilities

A contract asset is recorded when revenue is recognized in advance of the Company's right to bill and receive consideration and that right is conditioned upon something other than the passage of time. A contract liability, such as deferred revenue, is recorded when the Company has recorded billings in conjunction with its contractual right or when cash is received in advance of the Company's performance.

The following table presents contract assets and liabilities on the consolidated balance sheets (in millions).


Category	Balance Sheet Location	June 30, 2022		December 31, 2021
Contract Assets	Prepaid expenses and other current assets	$	12	$	—
Contract Assets	Other noncurrent assets	26		—
Contract Liabilities	Deferred revenues	1,663		478
Contract Liabilities	Other noncurrent liabilities	242		95

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The change in deferred revenue for the six months ended June 30, 2022 primarily reflects an increase of $1,476 million related to the Merger and cash payments received for which the performance obligation was not satisfied prior to the end of the period, partially offset by $347 million of revenues recognized that were included in the deferred revenue balance at December 31, 2021. Revenue recognized for the six months ended June 30, 2021 related to the deferred revenue balance at December 31, 2020 was $162 million.

Transaction Price Allocated to Remaining Performance Obligations

Most of the Company's distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which the guidance allows the application of a practical expedient to record revenues as a function of royalties earned to date instead of estimating incremental royalty contract revenue. Accordingly, in these instances revenue is recognized based upon the royalties earned to date. However, there are certain other distribution arrangements that are fixed price or contain minimum guarantees that extend beyond one year. The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees; by calculating one twelfth of annual license fees specified in its distribution contracts; or based on the pro-rata fees earned calculated on the license fees specified in the distribution contract. The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $2.7 billion as of June 30, 2022 and is expected to be recognized over the next seven years.

The Company's content licensing contracts and sports sublicensing deals are licenses of functional intellectual property. The transaction price allocated to remaining performance obligations on these contracts was $5.2 billion as of June 30, 2022 and is expected to be recognized over the next seven years.

The Company's brand licensing contracts are licenses of symbolic intellectual property. The transaction price allocated to remaining performance obligations on these contracts was $2.3 billion as of June 30, 2022 and is expected to be recognized over the next 21 years.

The Company's advertising contracts are principally generated from the sale of advertising campaigns comprised of multiple commercial units. In contracts with guaranteed impressions, we have identified the overall advertising campaign as the performance obligation to be satisfied over time, and impressions delivered against the satisfaction of our guarantee as the measure of progress. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $595 million as of June 30, 2022 and is expected to be recognized over the next three years.

The value of unsatisfied performance obligations disclosed above does not include: (i) contracts involving variable consideration for which revenues are recognized in accordance with the sales or usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as most advertising contracts; however for content licensing revenues, including revenues associated with the licensing of theatrical and television product for television and streaming services, the Company has included all contracts regardless of duration.

NOTE 7. SALES OF RECEIVABLES

Revolving Receivables Program

The Company has a revolving agreement to transfer up to $6,000 million of certain receivables through its bankruptcy-remote subsidiary Warner Bros. Discovery Receivables Funding, LLC to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. The Company services sold receivables for a fee and pays fees to the financial institution in connection with this revolving agreement. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded from time to time. As customers pay their balances the Company’s available capacity under this revolving agreement increases and typically the Company transfers additional receivables into the program. Our bankruptcy-remote consolidated subsidiary held $1,287 million of cash and $1,838 millionof pledged receivables as of June 30, 2022 in connection with this revolving agreement. The gross value of the proceeds received results in derecognition of receivables and the obligations assumed are recorded at fair value. The obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates, which are considered Level 3 fair value measurements since the inputs are unobservable. For the three and six months ended June 30, 2022, the Company has recognized a $41 million net loss in selling, general and administrative expense from the revolving receivables program in the consolidated statements of operations. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,700 million as of June 30, 2022.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents a summary of receivables sold (in millions).


	Three Months Ended June 30, 2022
Gross receivables sold/cash proceeds received	$	3,205
Collections reinvested under revolving agreement	(3,505)
Net cash proceeds received	$	(300)
Net receivables sold	$	3,198
Obligations recorded	$	98

The following table presents a summary of the amounts transferred or pledged (in millions):


	June 30, 2022
Gross receivables pledged as collateral	$	1,838
Restricted cash pledged as collateral	$	1,287
Balance sheet classification:

Receivables, net	$	1,629
Prepaid expenses and other current assets	$	1,287

Other noncurrent assets	$	209

Accounts Receivable Factoring

The Company has a factoring agreement to sell certain of its non-U.S. trade accounts receivable on a non-recourse basis to a third-party financial institution. The Company accounts for these transactions as sales in accordance with ASC 860, "Transfers and Servicing", when its continuing involvement subsequent to the transfer is limited to providing certain servicing and collection actions on behalf of the purchaser of the designated trade accounts receivable. Proceeds from amounts factored are recorded as an increase to cash and cash equivalents and a reduction to receivables, net in the consolidated balance sheets. Cash received is also reflected as cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring arrangements were $103 million as of June 30, 2022. The impact to the consolidated statements of operations was immaterial for the three and six months ended June 30, 2022. This accounts receivable factoring agreement is separate and distinct from the revolving receivables program.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3.8. CONTENT RIGHTS

For purposes of amortization and impairment, the capitalized content costs are grouped based on their predominant monetization strategy: individually or as a group. The table below presents the components of content rights (in millions).


	June 30, 2022
		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film production costs:
Released, less amortization		$	3,120	$	—	$	3,120
Completed and not released		318		—		318
In production		1,865		—		1,865
Development and pre-production		144		—		144

Television production costs:
Released, less amortization		1,585		7,010		8,595
Completed and not released		649		733		1,382
In production		490		3,711		4,201
Development and pre-production		37		19		56
Total theatrical film and television production costs		$	8,208	$	11,473	$	19,681

Programming and game costs:
Programming costs, less amortization (a)						10,288
Game development costs, less amortization						656
Total film and television content rights and games						30,625
Less: Current content rights and prepaid license fees, net						(505)
Total noncurrent film and television content rights and games, net						$	30,120

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	December 31, 2021
		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film production costs:
Released, less amortization		$	—	$	—	$	—
Completed and not released		—		—		—
In production		—		—		—
Development and pre-production		—		—		—

Television production costs:
Released, less amortization		9		2,432		2,441
Completed and not released		—		—		—
In production		—		770		770
Development and pre-production		—		17		17
Total theatrical film and television production costs		$	9	$	3,219	3,228

Programming and game costs:
Programming costs, less amortization (a)						849
Game development costs, less amortization						—
Total film and television content rights						4,077
Less: Current content rights and prepaid license fees, net						(245)
Total noncurrent film and television content rights, net						$	3,832


(a) Includes the costs of licensed programming rights, including payments that have been made prior to the related rights being received (primarily for sports).

Content expense consisted of the following (in millions).


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Monetized individually
Content amortization	$	1,927	$	25	$	2,177	$	49

Content impairments	94		—		94		—
Total content expense monetized individually	$	2,021	$	25	$	2,271	$	49

Monetized as a group
Content amortization	$	3,189	$	747	$	3,908	$	1,466

Content impairments	408		1		412		1
Total content expense monetized as a group	$	3,597	$	748	$	4,320	$	1,467
Total content expense	$	5,618	$	773	$	6,591	$	1,516

Content expense includes amortization, impairments, and development expense and is generally a component of costs of revenues on the consolidated statements of operations. Content impairments for the three and six months ended June 30, 2022 of $496 million and $501 million, respectively, and content development write-offs of $329 million for the three and six months ended June 30, 2022 were due to the abandonment of certain content categories in connection with the strategic realignment of content following the Merger and are reflected in restructuring and other charges in the Studios, Networks and DTC segments. No content impairments were recorded as a component of restructuring and other charges for the three and six months ended June 30, 2021.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 9. INVESTMENTS

The Company’s equity investments consisted of the following, net of investments recorded in other noncurrent liabilities (in millions).
Category Balance Sheet Location Ownership June 30, 2021 December 31, 2020
Equity method investments:
nC+ Other noncurrent assets 32% $ 156 $ 164
Discovery Solar Ventures, LLC (a)
Other noncurrent assets N/A 80 83
All3Media Other noncurrent assets 50% 83 76
Other Other noncurrent assets 240 184
Total equity method investments (b)
559 507
Investments with readily determinable fair values Prepaid expenses and other current assets 5 32
Investments with readily determinable fair values Other noncurrent assets 97 54
Equity investments without readily determinable fair values:
Group Nine Media (c)
Other noncurrent assets 25% 276 276
Sharecare Other noncurrent assets 2% 82 0
Formula E (d)
Other noncurrent assets 25% 65 65
Other Other noncurrent assets 209 200
Total equity investments without readily determinable fair values 632 541
Total investments $ 1,293 $ 1,134
(a) Discovery Solar Ventures, LLC invests in limited liability companies that sponsor renewable energy projects related to solar energy. These investments are considered variable interest entities ("VIEs") of the Company and are accounted for under the equity method of accounting using the Hypothetical Liquidation at Book Value methodology for allocating earnings.
(b) Total equity method investments at June 30, 2021 presented above includes a $9 million investment recorded in other noncurrent liabilities.
(c) Overall ownership percentage for Group Nine Media is calculated on an outstanding shares basis. The amount shown herein includes a $20 million note receivable balance within Prepaid expenses and other current assets on the Company's consolidated balance sheets.
(d) Ownership percentage for Formula E includes holdings accounted for as an equity method investment and holdings accounted for as an equity investment without a readily determinable fair value.


Category	Balance Sheet Location	Ownership	June 30, 2022		December 31, 2021
Equity method investments:
The Chernin Group (TCG) 2.0-A, LP	Other noncurrent assets	44%	$	352	$	—
nC+	Other noncurrent assets	32%	129		151
Other	Other noncurrent assets		683		390
Total equity method investments			1,164		541


Investments with readily determinable fair values	Other noncurrent assets		45		80
Investments with readily determinable fair values	Prepaid expenses and other current assets		14		40
Total investments with readily determinable fair values			59		120







Investments without readily determinable fair values	Other noncurrent assets		637		496
Total investments			$	1,860	$	1,157

Equity Method Investments

Investments in equity method investees are those for which the Company has the ability to exercise significant influence but does not control and is not the primary ~~beneficiary. The~~beneficiary or the entity is not a VIE and the Company ~~had 0 impairment~~does not have a controlling financial interest. In conjunction with the Merger, the Company acquired $671 million of equity method investments. Impairment losses are recorded in loss from equity investees, net on the consolidated statements of operations. Impairment losses for the three and six months ended June 30, ~~2021 and 2020.~~

With the exception of nC+, the carrying values of the Company’s equity method investments are consistent with its ownership in the underlying net assets of the investees. A portion of the Scripps Networks purchase price associated with the investment in nC+ was attributed to amortizable intangible assets. This basis difference is included in the carrying value of nC+ and is amortized over time as a reduction of earnings from nC+. Earnings from nC+2022 were reduced by the amortization of these intangibles of $5 million for each of the six months ended June 30, 2021 and 2020. Amortization that reduces the Company's equity in earnings of nC+ for future periods is expected to be $45 million.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

not material.

Certain of the Company's other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of June 30, ~~2021,~~2022, the Company’s maximum exposure for all of its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments made on behalf of VIEs, was approximately ~~$208~~$810 million. The Company's maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were ~~$111~~$772 million as of June 30, ~~2021~~2022 and ~~$123~~$126 million as of December 31, ~~2020. The Company recognized its portion of~~2021. VIE ~~operating results with net~~gains and losses of $7 million and $13 million for the three months ended June 30, 2021 and 2020, respectively, and net losses of $15 million and $22 million for the six months ended June 30, 2021 and 2020, respectively,are recorded in loss from equity investees, net on the consolidated statements of ~~operations.~~operations, and were not material for the three and six months ended June 30, 2022 and 2021.

Investments with Readily Determinable Fair Value

Investments in entities or other securities in which the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are classified as equity investments with readily determinable fair value. The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1). Gains and losses are recorded in other (expense) income, ~~(expense),~~ net on the consolidated statements of operations.

The gains and losses related to the Company's investments with readily determinable fair values for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 are summarized in the table below (in millions).

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net gains (losses) recognized during the period on equity securities $ 29 $ 7 $ 62 $ (15)
Less: Net gains recognized on equity securities sold 0 0 16 0
Unrealized gains (losses) recognized during reporting period on equity securities still held at the reporting date $ 29 $ 7 $ 46 $ (15)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net (losses) gains recognized during the period on equity securities	$	(41)	$	29	$	(61)	$	62
Less: Net gains recognized on equity securities sold	—		—		—		16
Unrealized (losses) gains recognized during reporting period on equity securities still held at the reporting date	$	(41)	$	29	$	(61)	$	46

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Equity investments without readily determinable fair values assessed under the measurement alternative

Equity investments without readily determinable fair value include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence and these investments do not have readily determinable fair values.

In conjunction with the Merger, the Company acquired$156 million in equity method investments without readily determinable fair values. During the six months ended June 30, ~~2021,~~2022, the Company ~~invested$10 million~~did not invest in ~~various~~any material equity investments without readily determinable fair values and concluded there were no indicators that ~~its other equity investments without readily determinable fair values had increased $81 million, net~~a change in fair value as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This change was primarily related to the write-up of the Company's investment in Sharecare.had taken place. As of June 30, ~~2021,~~2022, the Company had recorded cumulative upward adjustments of ~~$90~~$9 million and cumulative impairments of $1$88 million for its equity investments without readily determinable fair values.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

NOTE ~~4. FAIR VALUE MEASUREMENTS~~

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:


~~Level 1~~	–	~~Quoted prices for identical instruments in active markets.~~
~~Level 2~~	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
~~Level 3~~	–	~~Valuations derived from techniques in which one or more significant inputs are unobservable.~~

~~The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).~~
June 30, 2021
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ 0 $ 29 $ 0 $ 29
Equity securities:
Money market funds Cash and cash equivalents 40 0 0 40
Time deposits Prepaid expenses and other current assets 0 150 0 150
Mutual funds Prepaid expenses and other current assets 13 0 0 13
Company-owned life insurance contracts Prepaid expenses and other current assets 0 1 0 1
Mutual funds Other noncurrent assets 212 0 0 212
Company-owned life insurance contracts Other noncurrent assets 0 31 0 31
Total $ 265 $ 211 $ 0 $ 476
Liabilities
Deferred compensation plan Accounts payable and accrued liabilities $ 24 $ 0 $ 0 $ 24
Deferred compensation plan Other noncurrent liabilities 235 0 0 235
Total $ 259 $ 0 $ 0 $ 259

December 31, 2020
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ 0 $ 7 $ 0 $ 7
Treasury securities Cash and cash equivalents 500 0 0 500
Equity securities:
Money market funds Cash and cash equivalents 0 150 0 150
Time deposits Prepaid expenses and other current assets 0 250 0 250
Mutual funds Prepaid expenses and other current assets 14 0 0 14
Company-owned life insurance contracts Prepaid expenses and other current assets 0 4 0 4
Mutual funds Other noncurrent assets 200 0 0 200
Company-owned life insurance contracts Other noncurrent assets 0 48 0 48
Total $ 714 $ 459 $ 0 $ 1,173
Liabilities
Deferred compensation plan Accounts payable and accrued liabilities $ 28 $ 0 $ 0 $ 28
Deferred compensation plan Other noncurrent liabilities 220 0 0 220
Total $ 248 $ 0 $ 0 $ 248

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Equity securities include money market funds, time deposits, investments in mutual funds held in separate trusts, which are owned as part of the Company's supplemental retirement plans, and company-owned life insurance contracts. The fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs. The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees. Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation. Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).

In addition to the financial instruments listed in the tables above, the Company has other financial instruments, including cash deposits, accounts receivable, accounts payable, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of June 30, 2021 and December 31, 2020. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over-the-counter markets, considered Level 2 inputs, was $17.7 billion and $18.7 billion as of June 30, 2021 and December 31, 2020, respectively.

~~The Company's derivative financial instruments are discussed in Note 8 and its investments with readily determinable fair value are discussed in Note 3.~~

~~NOTE 5. CONTENT RIGHTS~~

~~The table below presents the components of content rights (in millions).~~

June 30, 2021 December 31, 2020
Produced content rights:
Completed $ 9,401 $ 8,576
In-production 674 731
Coproduced content rights:
Completed 940 888
In-production 97 78
Licensed content rights:
Acquired 1,198 1,312
Prepaid 683 556
Content rights, at cost 12,993 12,141
Accumulated amortization (8,734) (8,170)
Total content rights, net 4,259 3,971
Current portion (653) (532)
Noncurrent portion $ 3,606 $ 3,439

~~Content expense consisted of the following (in millions).~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Content amortization $ 772 $ 645 $ 1,515 $ 1,348
Other production charges 103 22 183 106
Content impairments 1 6 1 7
Total content expense $ 876 $ 673 $ 1,699 $ 1,461

~~As of June 30, 2021, the Company expects to amortize approximately~~58%, 26% and 12% of its produced and co-produced content, excluding content in-production, and 50%, 22% and 10% of its licensed content rights in the next three twelve-month operating cycles ending June 30, 2022, 2023 and 2024, respectively.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 6. GOODWILL~~

~~Goodwill~~

~~The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows (in millions).~~
U.S.
Networks International
Networks Total
December 31, 2020 10,813 $ 2,257 $ 13,070
Dispositions 0 (3) (3)
Foreign currency translation and other 0 (54) (54)
June 30, 2021 $ 10,813 $ 2,200 $ 13,013

The carrying amount of goodwill at the U.S. Networks segment included accumulated impairments of $20 million as of June 30, 2021 and December 31, 2020. The carrying amount of goodwill at the International Networks segment included accumulated impairments of $1.6 billion as of June 30, 2021 and December 31, 2020.

~~Impairment Analysis~~

During the second quarter of 2020, the Company performed a quantitative goodwill impairment analysis for the Asia-Pacific reporting unit and determined that the estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $36 million goodwill balance.

During the third quarter of 2020, the Company realigned its International Networks management reporting structure. As a result, Australia and New Zealand, which were previously included in the Europe reporting unit, are now included in the Asia-Pacific reporting unit, including associated goodwill.

During the fourth quarter of 2020, the Company performed its annual goodwill impairment assessment for all reporting units, and based on the quantitative impairment analysis for the Company’s Asia-Pacific reporting unit the estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $85 million goodwill balance. The Europe reporting unit, which had headroom of approximately 20%, was the only reporting unit with fair value in excess of carrying value that was 20% or lower. During the six months ended June 30, 2021, management concluded there were no triggering events. Management will continue to monitor this reporting unit for changes in the business environment that could impact recoverability.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 7.~~10. DEBT

The table below presents the components of outstanding debt (in millions).
June 30, 2021 December 31, 2020
4.375% Senior Notes, semi-annual interest, due June 2021 $ 0 $ 335
2.375% Senior Notes, euro denominated, annual interest, due March 2022 357 369
3.300% Senior Notes, semi-annual interest, due May 2022 168 168
3.500% Senior Notes, semi-annual interest, due June 2022 62 62
2.950% Senior Notes, semi-annual interest, due March 2023 796 796
3.250% Senior Notes, semi-annual interest, due April 2023 192 192
3.800% Senior Notes, semi-annual interest, due March 2024 450 450
2.500% Senior Notes, sterling denominated, annual interest, due September 2024 554 545
3.900% Senior Notes, semi-annual interest, due November 2024 497 497
3.450% Senior Notes, semi-annual interest, due March 2025 300 300
3.950% Senior Notes, semi-annual interest, due June 2025 500 500
4.900% Senior Notes, semi-annual interest, due March 2026 700 700
1.900% Senior Notes, euro denominated, annual interest, due March 2027 713 739
3.950% Senior Notes, semi-annual interest, due March 2028 1,700 1,700
4.125% Senior Notes, semi-annual interest, due May 2029 750 750
3.625% Senior Notes, semi-annual interest, due May 2030 1,000 1,000
5.000% Senior Notes, semi-annual interest, due September 2037 548 548
6.350% Senior Notes, semi-annual interest, due June 2040 664 664
4.950% Senior Notes, semi-annual interest, due May 2042 285 285
4.875% Senior Notes, semi-annual interest, due April 2043 516 516
5.200% Senior Notes, semi-annual interest, due September 2047 1,250 1,250
5.300% Senior Notes, semi-annual interest, due May 2049 750 750
4.650% Senior Notes, semi-annual interest, due May 2050 1,000 1,000
4.000% Senior Notes, semi-annual interest, due September 2055 1,732 1,732
Total debt 15,484 15,848
Unamortized discount, premium and debt issuance costs, net (a)
(437) (444)
Debt, net of unamortized discount, premium and debt issuance costs 15,047 15,404
Current portion of debt (585) (335)
Noncurrent portion of debt $ 14,462 $ 15,069

~~(a)~~ ~~Current portion~~


	Weighted-Average Interest Rate as of June 30, 2022		June 30, 2022		December 31, 2021
Term loans with maturities of 3 years or less	2.32	%	$	6,500	$	—
Floating rate senior notes with maturities of 5 years or less	2.31	%	500		—
Senior notes with maturities of 5 years or less	3.60	%	13,742		4,314
Senior notes with maturities between 5 and 10 years	4.25	%	10,373		4,128
Senior notes with maturities greater than 10 years	5.11	%	21,644		6,745
Total debt	0		52,759		15,187
Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net			(274)		(428)
Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting,			52,485		14,759
Current portion of debt			(1,097)		(339)
Noncurrent portion of debt			$	51,388	$	14,420

During the three months ended June 30, 2022, the Company repaid $3.5 billion of ~~unamortized discount, premium,~~aggregate principal amount outstanding of its term loans due October 2023 and ~~debt issuance costs, net is$1 million~~.April 2025. The Company also assumed $41.5 billion of senior notes (at par value) and term loans during the Merger.

~~Senior Notes~~

~~In July 2021, Discovery Communications, LLC (“DCL”) and Scripps Networks Interactive, Inc. ("Scripps"), wholly owned subsidiaries of Discovery Inc., issued notices for~~During the ~~redemption~~three months ended March 31, 2022, the Company repaid in full at maturity $327 million aggregate principal amount outstanding of ~~all~~its 2.375% Euro Denominated Senior Notes due March 2022.

In the third quarter of 2021, the Company redeemed in full $168 million aggregate principal amount outstanding of ~~DCL's~~its 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of ~~DCL's and Scripps'~~its 3.500% Senior Notes due June ~~2022 (collectively,~~2022. In the ~~"2022 Notes"). The 2022 Notes were~~first quarter of 2021, the Company redeemed on July 31, 2021 (the “Redemption Date”), at a redemption price with respect to each Note equal to the greater of (i) 100% of the principal amount of the Notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis at a comparable treasury rate (determined in accordance with the applicable indenture) plus 25 basis points, plus accrued interest thereon to the Redemption Date. The 2022 Notes were redeemed for an aggregate redemption price of $235 million, plus accrued interest. The redemption included $5 million for premium over par on the 2022 Notes and resulted in a loss on extinguishment of debt of $6 million.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~In February 2021, DCL issued a notice for the redemption~~ in full ~~of all~~ $335 million aggregate principal amount outstanding of its 4.375% Senior Notes due June ~~2021 (the “2021 Notes”) in accordance with the terms of the indenture governing the 2021 Notes.~~ 2021.

The redemptions during 2022 and 2021 ~~Notes were redeemed in March 2021 for an aggregate redemption price of $339 million, plus accrued interest. The redemption included $3 million for premium over par and~~ resulted in aan immaterial loss on extinguishment of ~~debt of $3 million.~~debt.

In the third quarter of 2020, Discovery, Inc. commenced 5 separate private offers to exchange (the “Exchange Offers”) any and all of DCL's outstanding 5.000% Senior Notes due 2037, 6.350% Senior Notes due 2040, 4.950% Senior Notes due 2042, 4.875% Senior Notes due 2043 and 5.200% Senior Notes due 2047 (collectively, the “Old Notes”) for one new series of DCL 4.000% Senior Notes, semi-annual interest, due September 2055 (the “New Notes”). Discovery, Inc. completed the Exchange Offers in September 2020, by exchanging $1.4 billion aggregate principal amount of the Old Notes for $1.7 billion aggregate principal amount of the New Notes (before debt discount of $318 million). The Exchange Offers were accounted for as a debt modification and, as a result, third-party issuance costs totaling $11 million were expensed as incurred.

Also, in the third quarter of 2020, the Company completed offers to purchase for cash (the “Cash Offers”) the Old Notes. Approximately $22 million aggregate principal amount of the Old Notes were validly tendered and accepted for purchase by Discovery pursuant to the Cash Offers, for total cash consideration of $27 million, plus accrued interest. The Cash Offers resulted in a loss on extinguishment of debt of $5 million.

In the second quarter of 2020, DCL issued $1.0 billion aggregate principal amount of Senior Notes due May 2030 and $1.0 billion aggregate principal amount of Senior Notes due May 2050. The proceeds received by DCL were net of a $1 million issuance discount and $20 million of debt issuance costs. DCL used the proceeds from the offering to repurchase $1.5 billion aggregate principal amount of DCL's and Scripps Networks' senior notes in a cash tender offer. The repurchase resulted in a loss on extinguishment of debt of $71 million. The loss included $62 million of net premiums to par value and $9 million of other charges. The Company used the remaining proceeds and cash on hand to fully repay the $500 million that was outstanding under its revolving credit facility.

As of June 30, ~~2021,~~2022, all senior notes are fully and unconditionally guaranteed by the Company, ~~and~~ Scripps Networks Interactive, Inc. ("Scripps Networks"), Discovery Communications, LLC ("DCL") (to the extent it is not the primary obligor on such senior notes), and WarnerMedia Holdings, Inc. (to the extent it is not the primary obligor on such senior notes), except for $1.5 billion of senior notes of the ~~remaining$32~~legacy WarnerMedia Business assumed by the Company in connection with the Merger and $23 million of un-exchanged senior notes issued by Scripps Networks. Additionally, the term loans of WarnerMedia Holdings, Inc., made under the $10 billion term loan credit agreement (the "Term Loan Credit Agreement"), are fully and unconditionally guaranteed by the Company, Scripps Networks, ~~senior notes acquired in conjunction with the acquisition of Scripps Networks.~~and DCL.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Revolving Credit Facility and Commercial Paper Programs

In June 2021, DCL entered into a multicurrency revolving credit agreement (the ~~"Credit Agreement"~~“Revolving Credit Agreement”), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. Following the Merger, DCL has the capacity to ~~initially~~ borrow up to ~~$2.5~~$6.0 billion under the Revolving Credit ~~Agreement. Upon the closing of the proposed combination transaction with WarnerMedia, the available commitments may be increased by $3.5 billion, to an aggregate amount not to exceed $6 billion.~~Agreement (the “Credit Facility”). The Revolving Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. DCL may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions. Obligations under the Revolving Credit Agreement are unsecured and are fully and unconditionally guaranteed by ~~Discovery, Inc. and~~the Company, Scripps Networks, ~~Interactive,~~and WarnerMedia Holdings, Inc.~~, and will also be guaranteed by the holding company of the WarnerMedia business upon the closing of the proposed combination transactions.~~ The Credit ~~Agreement~~Facility will be available on a revolving basis until June 2026, with an option for up to 2 additional 364-day renewal periods subject to the lenders' consent. The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. ~~As of June 30, 2021, DCL was in compliance with all covenants and there were no events of default under the Credit Facility.~~

Additionally, the Company's commercial paper program is supported by the Credit Facility. Under the commercial paper program, the Company may issue up to $1.5 billion, including up to $500 million of euro-denominated borrowings. Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program.

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had 0no outstanding borrowings under the Credit Facility or the commercial paper program.

Credit Agreement Financial Covenants

The Revolving Credit Agreement ~~includes~~and Term Loan Credit Agreement (together, the “Credit Agreements”) include financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of ~~4.50 to 1.00, which increases to~~ 5.75 to 1.00 ~~upon~~following the closing of the ~~proposed combination transaction with WarnerMedia,~~Merger, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of the closing, respectively. As of June 30, 2022, DCL and WarnerMedia Holdings, Inc. were in compliance with all covenants and there were no events of default under the Credit Agreements.

NOTE 11. LEASES

The Company has operating and finance leases for transponders, office space, studio facilities, and other equipment. Our leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to 10 years. Most leases are not cancelable prior to their expiration. In conjunction with the Merger, the Company acquired $2,493 million and $47 million of operating and finance lease right-of-use assets, respectively.

The components of lease cost were as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating lease cost	$	116	$	26	$	138	$	53

Finance lease cost:
Amortization of right-of-use assets	$	20	$	14	$	37	$	28
Interest on lease liabilities	2		2		4		4
Total finance lease cost	$	22	$	16	$	41	$	32

Variable lease cost	$	6	$	1	$	7	$	4
Total lease cost	$	144	$	43	$	186	$	89

1927

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Supplemental cash flow information related to leases was as follows (in millions):


	Six Months Ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(142)	$	(56)
Operating cash flows from finance leases	$	(7)	$	(4)
Financing cash flows from finance leases	$	(39)	$	(33)

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7	$	7
Finance leases	$	23	$	59

Supplemental balance sheet information related to leases was as follows (in millions):


Category	Location on Balance Sheet	June 30, 2022		December 31, 2021
Operating Leases
Operating lease right-of-use assets	Other noncurrent assets	$	2,918	$	535

Operating lease liabilities (current)	Accrued liabilities	$	335	$	62
Operating lease liabilities (noncurrent)	Other noncurrent liabilities	2,678		567
Total operating lease liabilities		$	3,013	$	629

Finance Leases
Finance lease right-of-use assets	Property and equipment, net	$	275	$	249

Finance lease liabilities (current)	Accrued liabilities	$	78	$	58
Finance lease liabilities (noncurrent)	Other noncurrent liabilities	206		197
Total finance lease liabilities		$	284	$	255


	June 30, 2022		December 31, 2021
Weighted average remaining lease term (in years):
Operating leases	11		12
Finance leases	5		5

Weighted average discount rate:
Operating leases	3.83	%	2.94	%
Finance leases	3.13	%	3.57	%

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Maturities of lease liabilities as of June 30, 2022 were as follows (in millions):


	Operating Leases		Finance Leases
2022 (excluding the two quarters ended June 30, 2022)	$	260	$	79
2023	425		75
2024	373		57
2025	319		37
2026	289		26
Thereafter	2,070		34
Total lease payments	3,736		308
Less: Imputed interest	(723)		(24)
Total	$	3,013	$	284

As of June 30, 2022, the Company has additional leases that have not yet commenced with total minimum lease payments of $1,175 million, primarily related to facility leases. The remaining leases will commence between 2022 and 2023, have lease terms of 3 to 27 years, and include options to extend the terms for up to 10 additional years.

NOTE 8.12. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates and interest rates. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.

Cash Flow Hedges

On January 1, 2022, the Company discontinued hedge accounting for certain forward starting interest rate swap contracts with a total notional value of $2 billion. The Company previously recognized a gain of $33 million in accumulated other comprehensive loss that will be amortized as an adjustment to interest expense, net over the respective terms of future issuances of debt. Subsequently, the Company unwound and settled the contracts and received cash of $122 million, including an $89 million realized gain for changes in fair market value between the dedesignation date and settlement date that was recognized in other (expense) income, net in the consolidated statements of operations.

In connection with the Merger, the Company acquired 2 cash flow hedging programs to mitigate foreign currency risk including $922 million notional of production expense hedges and $776 million notional of production rebate hedges. These cash flow hedging programs are carried at fair market value using the spot method, with fair market value changes recorded in other comprehensive income until the production airs. Excluded components of the fair market value, including forward points, are included in current earnings.

Net Investment Hedges

During the three months ended March 31, 2022, the Company unwound and settled certain fixed-to-fixed cross-currency swaps with a total notional value of $705 million associated with the Company's Euro functional subsidiaries. The Company recognized a realized gain of $10 million related to the excluded component of the hedge relationship in other (expense) income, net in the consolidated statements of operations, and recognized a gain of $6 million in accumulated other comprehensive loss.

Also during the three months ended March 31, 2022, the Company executed cross currency swaps with a notional value of $664 million with expiration dates in 2025 to replace the aforementioned swaps that matured.

During the three months ended June 30, 2022, the Company unwound and settled certain cross-currency swaps with a total notional value of $2 billion and recorded a gain of $78 million.

In connection with the Merger, the company also acquired $173 million of Euro denominated debt that is designated as a net investment hedge with all fair market value changes accounted for as currency translation adjustments.

No Hedging Designation

During the three months ended March 31, 2022, the Company dedesignated, unwound and settled forward starting interest rate swap contracts with a total notional value of $5.0 billion, swaption collars with a total notional value of $2.5 billion, and purchase payer swaptions with a total notional value of $7.5 billion. The Company received cash of $474 million upon settlement, including $142 million in premiums paid at execution during 2021, resulting in a gain of $332 million that was recognized in other (expense) income, net in the consolidated statements of operations.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Also during the three months ended March 31, 2022, the Company executed and subsequently settled treasury locks with a total notional value of $14.5 billion. The Company received cash of $90 million upon settlement, resulting in a gain of $90 million that was recognized in other (expense) income, net in the consolidated statements of operations.

Finally, during the three months ended March 31, 2022, the Company unwound and settled a foreign exchange forward contract with a notional value of $375 million associated with the Company's Euro denominated debt that was paid in full at maturity. The Company recognized a loss of $48 million in other (expense) income, net in the consolidated statements of operations.

The company acquired $322 million of economic hedges to mitigate foreign currency risk for production expenses that are not designated for hedge accounting. The fair market value changes of these derivatives are expensed to other (expense) income, net.

The following table summarizes the impact of derivative financial instruments on the Company's consolidated balance sheets (in millions). There were 0no amounts eligible to be offset under master netting agreements as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The fair value of the Company's derivative financial instruments ~~at June 30, 2021 and December 31, 2020~~ was determined using a market-based approach (Level 2).
June 30, 2021 December 31, 2020
Fair Value Fair Value
Notional Prepaid expenses and other current assets Other non-
current assets Accounts payable and accrued liabilities Other non-
current liabilities Notional Prepaid expenses and other current assets Other non-
current assets Accounts payable and accrued liabilities Other non-
current liabilities
Cash flow hedges:
Foreign exchange $ 1,200 $ 12 $ 13 $ 7 $ 11 $ 1,082 $ 2 $ 5 $ 14 $ 17
Interest rate swaps 2,000 55 0 8 0 2,000 0 11 0 89
Net investment hedges: (a)
Cross-currency swaps 3,557 46 47 29 115 3,544 34 41 0 154
Foreign exchange 37 0 0 0 0 44 2 0 0 0
No hedging designation:
Foreign exchange 941 0 0 16 37 1,035 0 0 2 26
Cross-currency swaps 139 3 0 0 6 139 2 0 0 13
Total $ 116 $ 60 $ 60 $ 169 $ 40 $ 57 $ 16 $ 299


	June 30, 2022										December 31, 2021
			Fair Value										Fair Value
	Notional		Prepaid expenses and other current assets		Other non- current assets		Accounts payable and accrued liabilities		Other non- current liabilities		Notional		Prepaid expenses and other current assets		Other non- current assets		Accounts payable and accrued liabilities		Other non- current liabilities
Cash flow hedges:
Foreign exchange	$	2,196	$	31	$	54	$	80	$	15	$	777	$	14	$	—	$	2	$	—
Interest rate swaps	—		—		—		—		—		2,000		44		—		11		—
Net investment hedges: (a)
Cross-currency swaps	1,620		16		29		—		59		3,512		54		61		20		76


No hedging designation:
Foreign exchange	806		4		1		—		98		1,020		—		—		34		66
Interest rate swaps	—		—		—		—		—		15,000		126		28		9		5
Cross-currency swaps	139		3		2		—		—		139		3		—		—		5


Total			$	54	$	86	$	80	$	172			$	241	$	89	$	76	$	152

(a) Excludes £400 million of sterling notes ($~~554~~486 million equivalent at June 30, ~~2021)~~2022) and €164 million of euro-denominated notes ($173 million equivalent at June 30, 2022) designated as a net investment ~~hedge.~~hedges. (See Note 7.10.)

The following table presents the ~~pretax~~pre-tax impact of derivatives designated as cash flow hedges on income and other comprehensive income (loss) (in millions).


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments	$	(7)	$	(7)	$	(20)	$	30
Interest rate - derivative adjustments	—		(134)		—		126
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - advertising revenue	—		—		1		—
Foreign exchange - distribution revenue	(2)		2		2		(1)
Foreign exchange - costs of revenues	18		—		19		—
Interest rate - interest expense, net	(1)		(1)		(1)		(1)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments $ (7) $ (7) $ 30 $ 69
Interest rate - derivative adjustments (134) 0 126 (272)
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - advertising revenue 0 0 0 1
Foreign exchange - distribution revenue 2 12 (1) 20
Foreign exchange - costs of revenues 0 1 0 2
Interest rate - interest expense, net (1) 1 (1) 1

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

If current fair values of designated cash flow hedges as of June 30, ~~2021~~2022 remained static over the next twelve months, the Company would reclassify $3$5 million of net deferred losses from accumulated other comprehensive loss into income in the next twelve months. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 3433 years.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The following table presents the ~~pretax~~pre-tax impact of derivatives designated as net investment hedges on other comprehensive income (loss) (in millions). Other than amounts excluded from effectiveness testing, there were no other gains (losses) reclassified from accumulated other comprehensive loss to income during the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.


		Three Months Ended June 30,																Three Months Ended June 30,
		Amount of gain (loss) recognized in AOCI				Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)		Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)										Amount of gain (loss) recognized in AOCI								Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)		Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
		2021		2020			2021			2020						2022				2021							2022			2021
Cross currency swaps	Cross currency swaps	$	(5)	$	(33)		Interest expense, net			$	11			$	11		Cross currency swaps			$	52			$	(5)		Interest expense, net			$	7			$	11

Foreign exchange contracts		0		(2)		Other income (expense), net		0				0

Euro-denominated notes (foreign denominated debt)														Euro-denominated notes (foreign denominated debt)				6				—				N/A		—				—
Sterling notes (foreign denominated debt)	Sterling notes (foreign denominated debt)	(3)		3		N/A		0				0		Sterling notes (foreign denominated debt)				41				(3)				N/A		—				—
Total	Total	$	(8)	$	(32)			$	11			$	11	Total				$	99			$	(8)					$	7			$	11


	Six Months Ended June 30,
	Amount of gain (loss) recognized in AOCI				Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
	2022		2021			2022		2021
Cross currency swaps	$	71	$	47	Interest expense, net	$	22	$	21


Euro denominated notes (foreign denominated debt)	6		—		N/A	—		—
Sterling notes (foreign denominated debt)	54		(8)		N/A	—		—
Total	$	131	$	39		$	22	$	21

Six Months Ended June 30,
Amount of gain (loss) recognized in AOCI Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
2021 2020 2021 2020
Cross currency swaps $ 47 $ 104 Interest expense, net $ 21 $ 23
Foreign exchange contracts 0 4 Other income (expense), net 0 0
Sterling notes (foreign denominated debt) (8) 33 N/A 0 0
Total $ 39 $ 141 $ 21 $ 23

The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in other (expense) income, ~~(expense),~~ net in the consolidated statements of operations (in millions).
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Cross-currency swaps $ 1 (3) 6 7
Equity 0 0 0 7
Foreign exchange derivatives (2) 7 (27) (37)
Total in other income (expense), net $ (1) $ 4 $ (21) $ (23)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest rate swaps	$	—	$	—	$	512	$	—
Cross-currency swaps	7		1		7		6


Foreign exchange derivatives	(31)		(2)		(46)		(27)
Total in other (expense) income, net	$	(24)	$	(1)	$	473	$	(21)

NOTE ~~9. EQUITY~~

~~Repurchase Programs~~

In February 2020, the Company's Board of Directors authorized additional stock repurchases of up to $2 billion upon completion of its existing $1 billion repurchase authorization announced in May 2019. Under the stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors.13. FAIR VALUE MEASUREMENTS

~~All common stock repurchases, including prepaid common stock repurchase contracts, have been made through open~~Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market ~~transactions~~participants. Assets and ~~have been recorded as treasury stock on~~liabilities carried at fair value are classified in the consolidated balance sheet. Over the life of the Company's repurchase programs and as of June 30, 2021, the Company had repurchased 3 million and 229 million shares of Series A and Series C common stock, respectively, for an aggregate purchase price of $171 million and $8.2 billion, respectively. There were 0 stock repurchases during thefollowing three and six months ended June 30, 2021 or during the three months ended June 30, 2020. During the six months ended June 30, 2020, the Company repurchased 19.4 million shares of its common stock for $523 million.categories:


Level 1	–	Quoted prices for identical instruments in active markets.
Level 2	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3	–	Valuations derived from techniques in which one or more significant inputs are unobservable.

2131

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).


		June 30, 2022
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	39	$	—	$	39

Equity securities:
Money market fund	Cash and cash equivalents	2		—		—		2

Mutual funds	Prepaid expenses and other current assets	26		—		—		26

Mutual funds	Other noncurrent assets	231		—		—		231
Company-owned life insurance contracts	Other noncurrent assets	—		100		—		100


Total		$	259	$	139	$	—	$	398
Liabilities
Deferred compensation plan	Accrued liabilities	$	52	$	—	$	—	$	52
Deferred compensation plan	Other noncurrent liabilities	615		—		—		615
Total		$	667	$	—	$	—	$	667

~~Preferred Stock~~


		December 31, 2021
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	426	$	—	$	426

Equity securities:
Money market funds	Cash and cash equivalents	425		—		—		425

Mutual funds	Prepaid expenses and other current assets	12		—		—		12
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		1		—		1
Mutual funds	Other noncurrent assets	215		—		—		215
Company-owned life insurance contracts	Other noncurrent assets	—		32		—		32
Total		$	652	$	459	$	—	$	1,111
Liabilities
Deferred compensation plan	Accrued Liabilities	$	21	$	—	$	—	$	21
Deferred compensation plan	Other noncurrent liabilities	238		—		—		238
Total		$	259	$	—	$	—	$	259

~~During~~Equity securities include money market funds, time deposits, investments in mutual funds held in separate trusts, which are owned as part of the ~~six months ended~~Company's supplemental retirement plans, and company-owned life insurance contracts. The fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs. The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees. Changes in the fair value of the investments are recorded in other (expense) income, net and changes in the deferred compensation liability are recorded in selling, general and administrative expense. Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).

In addition to the financial instruments listed in the tables above, the Company has other financial instruments, including cash deposits, accounts receivable, accounts payable, term loans, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of June 30, 2022 and December 31, 2021. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over-the-counter markets, considered Level 2 inputs, was $42.1 billion and $17.2 billion as of June 30, 2022 and December 31, 2021, ~~Advance Newhouse Programming Partnership converted 0.6 million of~~respectively.

The Company's derivative financial instruments are discussed in Note 12, its ~~Series C-1 convertible preferred stock into 11.0 million shares of Series C common stock.~~

~~Other Comprehensive Income (Loss) Adjustments~~

~~The table below presents~~investments with readily determinable fair value are discussed in Note 9, and the ~~tax effects related to each component of other comprehensive income (loss) and reclassifications made~~obligation for its revolving receivable program is discussed in ~~the consolidated statements of operations (in millions).~~
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020

Pretax
Tax benefit (expense)

Net-of-tax

Pretax
Tax benefit (expense)

Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency $ 121 $ (2) $ 119 $ 145 $ 10 $ 155
Net investment hedges (13) 2 (11) (38) (1) (39)
Total currency translation adjustments 108 0 108 107 9 116
Derivative adjustments:
Unrealized gains (losses) (141) 29 (112) (7) 4 (3)
Reclassifications from other comprehensive income to net income (1) 1 0 (14) 2 (12)
Total derivative adjustments (142) 30 (112) (21) 6 (15)
Other comprehensive income (loss) adjustments $ (34) $ 30 $ (4) $ 86 $ 15 $ 101

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
Pretax Tax benefit (expense) Net-of-tax Pretax Tax benefit (expense) Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency $ (109) $ 14 $ (95) $ (164) $ 57 $ (107)
Net investment hedges 29 7 36 129 (47) 82
Total currency translation adjustments (80) 21 (59) (35) 10 (25)
Derivative adjustments:
Unrealized gains (losses) 156 (33) 123 (203) 49 (154)
Reclassifications from other comprehensive income to net income 2 0 2 (24) 4 (20)
Total derivative adjustments 158 (33) 125 (227) 53 (174)
Other comprehensive income (loss) adjustments $ 78 $ (12) $ 66 $ (262) $ 63 $ (199)
Note 7.

2232

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Accumulated Other Comprehensive Loss~~

~~The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).~~
Three Months Ended June 30, 2021
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated
Other
Comprehensive Loss
Beginning balance $ (722) $ 156 $ (15) $ (581)
Other comprehensive income (loss) 108 (112) 0 (4)
Ending balance $ (614) $ 44 $ (15) $ (585)

Three Months Ended June 30, 2020
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated
Other
Comprehensive Loss
Beginning balance $ (988) $ (127) $ (7) $ (1,122)
Other comprehensive income (loss) before reclassifications 116 (3) 0 113
Reclassifications from accumulated other comprehensive loss to net income 0 (12) 0 (12)
Other comprehensive income (loss) 116 (15) 0 101
Ending balance $ (872) $ (142) $ (7) $ (1,021)

Six Months Ended June 30, 2021
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated Other Comprehensive Loss
Beginning balance $ (555) $ (81) $ (15) $ (651)
Other comprehensive income (loss) before reclassifications (59) 123 0 64
Reclassifications from accumulated other comprehensive loss to net income 0 2 0 2
Other comprehensive income (loss) (59) 125 0 66
Ending balance $ (614) $ 44 $ (15) $ (585)

Six Months Ended June 30, 2020
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated Other Comprehensive Loss
Beginning balance $ (847) $ 32 $ (7) $ (822)
Other comprehensive income (loss) before reclassifications (25) (154) 0 (179)
Reclassifications from accumulated other comprehensive loss to net income 0 (20) 0 (20)
Other comprehensive income (loss) (25) (174) 0 (199)
Ending balance $ (872) $ (142) $ (7) $ (1,021)

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 10. REVENUES AND ACCOUNTS RECEIVABLE~~

~~Disaggregated Revenue~~

The following table presents the Company’s revenues disaggregated by revenue source (in millions). Management uses these categories of revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.

Three Months Ended June 30,
2021 2020
U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total
Revenues:
Advertising $ 1,119 $ 518 $ 0 $ 1,637 $ 997 $ 276 $ 0 $ 1,273
Distribution 828 540 0 1,368 739 486 0 1,225
Other 26 35 (4) 57 20 21 2 43
Total $ 1,973 $ 1,093 $ (4) $ 3,062 $ 1,756 $ 783 $ 2 $ 2,541

Six Months Ended June 30,
2021 2020
U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total
Revenues:
Advertising $ 2,099 $ 953 $ 0 $ 3,052 $ 2,023 $ 652 $ 0 $ 2,675
Distribution 1,624 1,054 0 2,678 1,447 1,001 0 2,448
Other 56 73 (5) 124 42 53 6 101
Total $ 3,779 $ 2,080 $ (5) $ 5,854 $ 3,512 $ 1,706 $ 6 $ 5,224

~~Accounts Receivable and Credit Losses~~

Receivables include amounts currently due from customers and are presented net of an estimate for lifetime expected credit losses. Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates. To assess collectability, the Company analyzes market trends, economic conditions, the aging of receivables and customer specific risks, and records a provision for estimated credit losses expected over the lifetime of receivables. The corresponding expense for the expected credit losses is reflected in selling, general and administrative expenses. The Company does not require collateral with respect to trade receivables.

The Company’s accounts receivable balances and the related credit losses arise primarily from distribution and advertising revenue. The Company monitors ongoing credit exposure through active review of customers’ financial conditions, aging of receivable balances, historical collection trends, and expectations about relevant future events that may significantly affect collectability. The allowance for credit losses increased from $59 million at December 31, 2020 to $63 million at June 30, 2021. The activity in the allowance for credit losses for the six months ended June 30, 2021 was not material.

~~Contract Liability~~

A contract liability, such as deferred revenue, is recorded when cash is received in advance of the Company's performance. Total deferred revenues, including both current and noncurrent, were $820 million and $649 million at June 30, 2021 and December 31, 2020, respectively. Noncurrent deferred revenue is a component of other noncurrent liabilities on the consolidated balance sheets. The change in deferred revenue for the six months ended June 30, 2021 was primarily due to cash payments received for which the performance obligation was not satisfied prior to the end of the period, partially offset by revenue recognized during the period, of which $162 million was included in the deferred revenue balance at December 31, 2020. Revenue recognized for the six months ended June 30, 2020 related to the deferred revenue balance at December 31, 2019 was $244 million.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Transaction Price Allocated to Remaining Performance Obligations~~

Most of the Company's distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which the guidance allows the application of a practical expedient to record revenues as a function of royalties earned to date instead of estimating incremental royalty contract revenue. Accordingly, in these instances revenue is recognized based upon the royalties earned to date. However, there are certain other distribution arrangements that are fixed price or contain minimum guarantees that extend beyond one year. The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees or by calculating one twelfth of annual license fees specified in its distribution contracts. The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $1.4 billion as of June 30, 2021 and is expected to be recognized over the next six years.

The Company's content licensing contracts and sports sublicensing deals are licenses of functional intellectual property. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $962 million as of June 30, 2021 and is expected to be recognized over the next four years.

The Company's brand licensing contracts are licenses of symbolic intellectual property. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $95 million as of June 30, 2021 and is expected to be recognized over the next twelve years.

~~NOTE 11. SHARE-BASED COMPENSATION~~

The table below presents the components of share-based compensation expense (in millions), which is recorded in selling, general and administrative expense in the consolidated statements of operations.

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
PRSUs $ (7) $ 5 $ 12 $ (12)
RSUs 29 20 51 37
Stock options 16 7 26 16
SARs (7) 2 6 (11)
Total share-based compensation expense $ 31 $ 34 $ 95 $ 30
Tax benefit recognized $ 7 $ 5 $ 15 $ 7

The Company recorded total liabilities for cash-settled and other liability-settled share-based compensation awards of $30 million and $55 million as of June 30, 2021 and December 31, 2020, respectively. The current portion of the liability for cash-settled and other liability-settled awards was $27 million and $37 million as of June 30, 2021 and December 31, 2020, respectively.

~~During the six months ended June 30, 2021, 5.9 million stock options were exercised and the Company received proceeds of $159 million from these transactions.~~

~~The table below presents awards granted (in millions, except weighted-average grant price).~~
Six Months Ended June 30, 2021
Awards Weighted-Average Grant Price
Awards granted:
PRSUs 0.2 $ 58.18
RSUs 2.7 $ 55.83
Stock options 15.5 $ 40.25

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The table below presents unrecognized compensation cost related to non-vested share-based awards and the weighted-average amortization period over which these expenses will be recognized as of June 30, 2021 (in millions, except years).
Unrecognized Compensation Cost Weighted-Average Amortization Period
(years)
PRSUs $ 4 0.5
RSUs 290 2.6
Stock options 258 2.9
SARs 1 0.5
Total unrecognized compensation cost $ 553

Of the $290 million of unrecognized compensation cost related to RSUs, $53 million is related to cash settled RSUs. Stock settled RSUs are expected to be recognized over a weighted-average period of 1.4 years and cash settled RSUs are expected to be recognized over a weighted-average period of 2.7 years.

~~NOTE 12. INCOME TAXES~~

Income tax expense was $2 million and $108 million for the three and six months ended June 30, 2021, respectively, and $156 million and $286 million for the three and six months ended June 30, 2020, respectively. The decrease in income tax expense for the three and six months ended June 30, 2021 was primarily attributable to a deferred tax benefit of $162 million as a result of the UK Finance Act 2021 that was enacted in June 2021.

Income tax expense for the three and six months ended June 30, 2021 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to a deferred tax benefit of $162 million as a result of the UK Finance Act 2021 that was enacted in June 2021, the effect of foreign operations, which included taxation and allocation of income and losses among multiple foreign jurisdictions, state and local income taxes, and favorable noncontrolling interest tax adjustments.

The Company's reserves for uncertain tax positions as of June 30, 2021 and December 31, 2020 totaled $383 million and $348 million, respectively. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease by as much as $75 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.

As of June 30, 2021 and December 31, 2020, the Company had accrued approximately $58 million and $53 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 13. EARNINGS PER SHARE~~

~~The table below sets forth the Company's calculated earnings per share. Earnings per share amounts may not recalculate due to rounding.~~
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Numerator:
Net income $ 718 $ 300 $ 909 $ 707
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock (72) (29) (87) (68)
Net income attributable to noncontrolling interests (38) (25) (84) (53)
Net income attributable to redeemable noncontrolling interests (8) (4) (13) (6)
Redeemable noncontrolling interest adjustments of carrying value to redemption value (redemption value does not equal fair value) 0 1 0 1
Net income allocated to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share $ 600 $ 243 $ 725 $ 581

Allocation of net income:
Series A, B and C common stockholders $ 515 $ 205 $ 618 $ 491
Series C-1 convertible preferred stockholders 85 38 107 90
Total 600 243 725 581
Add:
Allocation of undistributed income to Series A-1 convertible preferred stockholders 72 29 87 68
Net income allocated to Discovery, Inc. Series A, B and C common stockholders for diluted net income per share $ 672 $ 272 $ 812 $ 649
Denominator — weighted average:
Series A, B and C common shares outstanding — basic 506 508 501 513
Impact of assumed preferred stock conversion 154 165 157 165
Dilutive effect of share-based awards 4 1 8 2
Series A, B and C common shares outstanding — diluted 664 674 666 680
Series C-1 convertible preferred stock outstanding — basic and diluted 4 5 4 5

Basic net income per share allocated to:
Series A, B and C common stockholders $ 1.02 $ 0.40 $ 1.23 $ 0.96
Series C-1 convertible preferred stockholders $ 19.71 $ 7.83 $ 23.90 $ 18.55

Diluted net income per share allocated to:
Series A, B and C common stockholders $ 1.01 $ 0.40 $ 1.22 $ 0.95
Series C-1 convertible preferred stockholders $ 19.60 $ 7.81 $ 23.61 $ 18.49

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~The table below presents the details of share-based awards that were excluded from the calculation of diluted earnings per share (in millions).~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Anti-dilutive share-based awards 16 27 6 24

NOTE 14. SHARE-BASED COMPENSATION

The Company has various incentive plans under which performance-based restricted stock units ("PRSUs"), service-based restricted stock units ("RSUs"), stock options, and stock appreciation rights ("SARs") have been issued. In connection with the Merger, AT&T RSUs subject to time based vesting held by WM employees were replaced with WBD RSUs granted on comparable terms upon closing of the Merger, increasing RSU expense, grants and unrecognized compensation expense for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
PRSUs	$	(1)	$	(7)	$	2	$	12
RSUs	$	128	$	29	$	166	$	51
Stock options	$	23	$	16	$	41	$	26
SARs	$	—	$	(7)	$	1	$	6
Total share-based compensation expense	$	150	$	31	$	210	$	95
Tax benefit recognized	$	31	$	7	$	40	$	15

The table below presents awards granted (in millions, except weighted-average grant price).


	Six Months Ended June 30, 2022
	Awards	Weighted-Average Grant Price
Awards granted:
PRSUs	0.4	$	28.11
RSUs	30.1	$	24.75
Stock options	0.4	$	32.90


	Unrecognized Compensation Cost		Weighted-Average Amortization Period (years)
PRSUs	$	3	0.5
RSUs	696		2.3
Stock options	188		3.8

Total unrecognized compensation cost	$	887

Of the $696 million of unrecognized compensation cost related to RSUs, $41 million is related to cash-settled RSUs. Stock-settled RSUs are expected to be recognized over a weighted-average period of 2.4 years and cash-settled RSUs are expected to be recognized over a weighted-average period of 2.2 years.

NOTE 15. INCOME TAXES

The income tax balances as of June 30, 2022 are inclusive of the WM Business as a result of the Merger. Income tax benefit was $836 million and $635 million for the three and six months ended June 30, 2022, respectively, and income tax expense was $2 million and $108 million for the three and six months ended June 30, 2021, respectively. The decrease in the three months ended June 30, 2022 was primarily attributable to a decrease in pre-tax book income, partially offset by an unfavorable tax adjustment related to the preferred stock conversion transaction expensediscussed in Note 2, which was not deductible for tax purposes, and a deferred tax benefit of $162 million recorded in the three months ended June 30, 2021 as a result of the UK Finance Act 2021 that was enacted in June 2021.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Income tax benefit for the three and six months ended June 30, 2022 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to the effect of foreign operations, which included taxation and allocation of income and losses among multiple foreign jurisdictions, state and local income taxes, and the non-tax deductible preferred stock conversion transaction expense discussed above.

On April 8, 2022, the Company completed its merger with the WM business. In connection with the merger, the Company entered into a tax matters agreement (“TMA”) with AT&T. Pursuant to the TMA, the Company is responsible for tax liabilities related to the periods prior to AT&T's ownership of the business (June 14, 2018), and AT&T is responsible for tax liabilities related to the period for which they owned the business (June 15, 2018 through April 8, 2022).The Company is fully indemnified by AT&T for any tax liabilities arising for the period June 15, 2018 through April 8, 2022. As of June 30, 2022, the Company has recorded reserves for uncertain tax positions and the associated interest and penalties payable related to WM of $860 million and $187 million, respectively, through purchase accounting. Indemnification receivables of $286 million were also recorded during the three months ended June 30, 2022.

With respect to uncertain tax positions related to jurisdictions that have joint and several liability among members of the AT&T tax filing group during the AT&T ownership period, the Company recognizes only the amount they expect to pay to the taxing authorities after considering the contractual indemnification agreement with AT&T and AT&T’s ability to settle any disputed positions with the taxing authorities. As of June 30, 2022, the Company has not recorded any liabilities for uncertain tax positions or indemnification receivables related to matters that were attributable to jurisdictions that have joint and several liability among members of the AT&T filing group since AT&T was determined to be the primary obligor.

As of June 30, 2022 and December 31, 2021, the Company's reserves for uncertain tax positions totaled $1,386 million and $420 million, respectively. The increase in the reserve for uncertain tax positions at June 30, 2022 is primarily attributable to the Merger. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease by as much as $256 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.

As of June 30, 2022 and December 31, 2021, the Company had accrued approximately $258 million and $60 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. The increase in the accrual for interest and penalties payable at June 30, 2022 is primarily attributable to the Merger. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

NOTE 16. BENEFIT PLANS

The Company has a defined benefit pension plan that covers certain U.S.-based employees and a non-qualified unfunded Supplemental Executive Retirement Plan that provides defined pension benefits to eligible executives. In connection with the Merger, the Company also assumed 4 additional U.S. nonqualified pension plans that are noncontributory and unfunded and several non-U.S. pension plans. The 4 U.S. plans consist of the Time Warner Excess Benefit Plan (the “Excess plan”), the Retirement Accumulation Plan (“RAP”), the Supplemental Executive Retirement Plan (“SERP”) and the Wealth Accumulation Plan (“WAP”) (together, the “U.S. Nonqualified Plans”). The U.S. Nonqualified Plans were closed to new entrants during 2010. The Excess plan and RAP are both frozen to new benefit accruals. SERP and WAP only have retirees remaining. The pension formula for the Excess plan captured pay above compensation limits or benefit limits. RAP is a cash balance type formula and now provides only interest credits.

The Company also holds net assets and net liabilities on behalf of other U.S. and non-U.S. pension plans. The plan provisions vary by plan and by country. Some of these plans are unfunded and all are noncontributory.

Obligations and Funded Status

For all of the acquired defined benefit pension plans, the benefit obligation is the projected benefit obligation, the actuarial present value, as of our April 8, 2022 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefits to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees and their beneficiaries and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels, as applicable.

The unfunded status of the acquired U.S. Nonqualified Plans as of April 8, 2022 was a liability of $278 million. The unfunded status represents a pension benefit obligation of $278 million, with no plan assets. The funded status of the acquired non-U.S. pension plans as of April 8, 2022 was a net asset of $146 million. The funded status represents a pension benefit obligation of $659 million less the fair value of the plan assets of $805 million.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Total assets (liabilities) recognized for all acquired pension plans on our consolidated balance sheets were as follows (in millions).


	April 8, 2022
Plan assets, net	$	200
Current portion of employee benefit obligation	(27)
Noncurrent portion of employee benefit obligation	(305)
Net amount recognized	$	(132)

Net Periodic Pension Cost

The service cost component of net periodic pension cost is recorded in operating expenses in the consolidated statements of operations, while the remaining components are recorded in other (expense) income, net. Net periodic pension cost was not material for the three and six months ended June 30, 2022 and 2021.

Assumptions

In determining the projected benefit obligation and the net pension and postretirement benefit cost for the acquired plans, the Company used the following significant weighted-average assumptions.


	April 8, 2022
		U.S. Nonqualified Plans		Non-U.S. Pension Plans
Discount rate		3.89	%	2.51	%
Long-term rate of return on plan assets		N/A		1.61	%
Rate of compensation increases		N/A		5.82	%

NOTE 17. SUPPLEMENTAL DISCLOSURES

The following tables present supplemental information related to the consolidated financial statements (in millions).

~~Supplemental Cash Flow Information~~
Six Months Ended June 30,
2021 2020
Cash paid for taxes, net $ 249 $ 183
Cash paid for interest, net 337 342
Non-cash investing and financing activities:
Accrued purchases of property and equipment 32 38
Assets acquired under finance lease and other arrangements 50 67
Accrued Liabilities

~~Cash, Cash Equivalents, and Restricted Cash~~
June 30, 2021 December 31, 2020
Cash, cash equivalents, and restricted cash:
Cash and cash equivalents $ 2,834 $ 2,091
Restricted cash - other current assets 0 31
Total cash, cash equivalents, and restricted cash $ 2,834 $ 2,122

~~NOTE 15. RELATED PARTY TRANSACTIONS~~

In the normal course of business, the Company enters into transactions with related parties. Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation ("Liberty Broadband") and their subsidiaries and equity method investees (collectively the “Liberty Group”). Discovery’s Board of Directors includes Dr. Malone, who is ChairmanAccrued liabilities consisted of the Board of Liberty Global and beneficially owns approximately 30% of the aggregate voting power with respect to the election of directors of Liberty Global. Dr. Malone is also Chairman of the Board of Liberty Broadband and beneficially owns approximately 47% of the aggregate voting power with respect to the election of directors of Liberty Broadband. The majority of the revenue earned from the Liberty Group relates to multi-year network distribution arrangements. Related party transactions also include revenues and expenses for content and services provided to or acquired from equity method investees, or minority partners of consolidated subsidiaries.following (in millions):


	June 30, 2022		December 31, 2021
Accrued participation and residuals	$	3,007	$	—
Accrued production	1,461		4
Content rights payable	1,453		772
Accrued payroll and related benefits	1,432		533
Other accrued liabilities	2,926		921
Total accrued expenses and other current liabilities	$	10,279	$	2,230

Other (Expense) Income, net


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Foreign currency (losses) gain, net	$	(81)	$	(5)	$	(70)	$	47
(Losses) gains on derivative instruments, net	(24)		(1)		473		(21)

Change in the value of investments with readily determinable fair value	(70)		29		(90)		46
Gain on sale of equity method investments	133		(1)		133		4

Change in fair value of equity investments without readily determinable fair value	—		81		—		81



Other (expense) income, net	(9)		2		(7)		16
Total other (expense) income, net	$	(51)	$	105	$	439	$	173

2835

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Supplemental Cash Flow Information


	Six Months Ended June 30,
	2022		2021
Cash paid for taxes, net	$	442	$	249
Cash paid for interest, net	390		337
Non-cash investing and financing activities:
Equity issued for the acquisition of WarnerMedia	42,309		—

Accrued purchases of property and equipment	47		32
Assets acquired under finance lease and other arrangements	27		50

Cash, Cash Equivalents, and Restricted Cash


	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	2,575	$	3,905
Restricted cash - recorded in prepaid expenses and other current assets (1)	1,321		—
Total cash, cash equivalents, and restricted cash	$	3,896	$	3,905

(1) Restricted cash primarily includes cash posted as collateral related to the Company’s revolving receivables program. (See Note 7.)

Other Comprehensive Income (Loss) Adjustments

The table below presents ~~a summary~~the tax effects related to each component of other comprehensive income (loss) and reclassifications made in the ~~transactions with related parties~~consolidated statements of operations (in millions).
Three Months Ended June 30, Six Months Ended June 30,
2021
2020 (a)
2021
2020 (a)
Revenues and service charges:
Liberty Group $ 165 $ 201 $ 340 $ 371
Equity method investees 68 43 124 109
Other 24 24 51 46
Total revenues and service charges $ 257 $ 268 $ 515 $ 526
Expenses $ (57) $ (16) $ (114) $ (90)
Distributions to noncontrolling interests and redeemable noncontrolling interests $ (30) $ (29) $ (213) $ (202)


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
	Pretax		Tax benefit (expense)		Net-of-tax		Pretax		Tax benefit (expense)		Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency	$	(560)	$	2	$	(558)	$	121	$	(2)	$	119
Net investment hedges	97		(27)		70		(13)		2		(11)


Total currency translation adjustments	(463)		(25)		(488)		108		—		108

Derivative adjustments:
Unrealized (losses) gains	(7)		—		(7)		(141)		29		(112)
Reclassifications from other comprehensive income to net income	(15)		4		(11)		(1)		1		—
Total derivative adjustments	(22)		4		(18)		(142)		30		(112)
Other comprehensive (loss) income adjustments	$	(485)	$	(21)	$	(506)	$	(34)	$	30	$	(4)

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
	Pretax		Tax benefit (expense)		Net-of-tax		Pretax		Tax benefit		Net-of-tax
Currency translation adjustments:
Unrealized (losses) gains:
Foreign currency	$	(665)	$	2	$	(663)	$	(109)	$	14	$	(95)
Net investment hedges	119		(41)		78		29		7		36
Reclassifications:
Loss on disposition	(2)		—		(2)		—		—		—
Total currency translation adjustments	(548)		(39)		(587)		(80)		21		(59)

Derivative adjustments:
Unrealized (losses) gains	(20)		1		(19)		156		(33)		123
Reclassifications from other comprehensive income to net income	(21)		4		(17)		2		—		2
Total derivative adjustments	(41)		5		(36)		158		(33)		125
Other comprehensive (loss) income adjustments	$	(589)	$	(34)	$	(623)	$	78	$	(12)	$	66

Accumulated Other Comprehensive Loss

The table below presents ~~receivables due from and payables due to related parties~~the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).
June 30, 2021 December 31, 2020
Receivables $ 180 $ 177
Payables $ 22 $ 43


	Three Months Ended June 30, 2022
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(944)	$	10	$	(13)	$	(947)
Other comprehensive income (loss) before reclassifications	(488)		(7)		—		(495)
Reclassifications from accumulated other comprehensive loss to net income	—		(11)		—		(11)
Other comprehensive income (loss)	(488)		(18)		—		(506)


Ending balance	$	(1,432)	$	(8)	$	(13)	$	(1,453)

~~(a)~~ ~~Amounts have been revised to adjust for classification between lines and excluded balances solely within this footnote disclosure.~~

~~Revised amounts are not material to the previously issued financial statements.~~


	Three Months Ended June 30, 2021
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(722)	$	156	$	(15)	$	(581)



Other comprehensive income (loss)	108		(112)		—		(4)

Ending balance	$	(614)	$	44	$	(15)	$	(585)

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Six Months Ended June 30, 2022
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(845)	$	28	$	(13)	$	(830)
Other comprehensive (loss) before reclassifications	(585)		(19)		—		(604)
Reclassifications from accumulated other comprehensive loss to net income	(2)		(17)		—		(19)

Other comprehensive (loss)	(587)		(36)		—		(623)

Ending balance	$	(1,432)	$	(8)	$	(13)	$	(1,453)


	Six Months Ended June 30, 2021
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(555)	$	(81)	$	(15)	$	(651)
Other comprehensive (loss) income before reclassifications	(59)		123		—		64
Reclassifications from accumulated other comprehensive loss to net income	—		2		—		2
Other comprehensive (loss) income	(59)		125		—		66
Ending balance	$	(614)	$	44	$	(15)	$	(585)

NOTE ~~16.~~18. RELATED PARTY TRANSACTIONS

In the normal course of business, the Company enters into transactions with related parties. Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation ("Liberty Broadband") and their subsidiaries and equity method investees (collectively the “Liberty Group”). The Company’s Board of Directors includes Dr. Malone, who is Chairman of the Board of Liberty Global and beneficially owns approximately 30% of the aggregate voting power with respect to the election of directors of Liberty Global. Dr. Malone is also Chairman of the Board of Liberty Broadband and beneficially owns approximately 47% of the aggregate voting power with respect to the election of directors of Liberty Broadband. The majority of the revenue earned from the Liberty Group relates to multi-year network distribution arrangements. Related party transactions also include revenues and expenses for content and services provided to or acquired from equity method investees, or minority partners of consolidated subsidiaries.

The table below presents a summary of the transactions with related parties (in millions).


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues and service charges:
Liberty Group	$	535	$	165	$	693	$	340
Equity method investees	179		68		237		124
Other	156		24		189		51
Total revenues and service charges	$	870	$	257	$	1,119	$	515
Expenses	$	(166)	$	(57)	$	(242)	$	(114)
Distributions to noncontrolling interests and redeemable noncontrolling interests	$	(40)	$	(30)	$	(264)	$	(213)

The table below presents receivables due from and payables due to related parties (in millions).


	June 30, 2022		December 31, 2021
Receivables	$	821	$	172
Payables	$	38	$	23

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 19. COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, the Company enters into various commitments, which primarily include programming, film licensing, talent arrangements and other agreements, operating and finance leases (see Note 11), arrangements to purchase various goods and services, long-term debt (see Note 10) and future funding commitments to equity method investees (in millions).


							Long-Term Debt
Year Ending December 31,	Content		Other Purchase Obligations		Pension and Other Employee Obligations		Principal		Interest		Total
2022 (remaining six months)	$	5,658	$	1,148	$	321	$	—	$	1,133	$	8,260
2023	6,468		932		463		1,349		2,243		11,455
2024	5,223		463		225		4,271		2,159		12,341
2025	3,807		289		100		9,647		1,863		15,706
2026	2,512		105		67		790		1,729		5,203
Thereafter	10,880		101		232		36,702		27,487		75,402
Total	$	34,548	$	3,038	$	1,408	$	52,759	$	36,614	$	128,367

Content purchase obligations include commitments and liabilities associated with third-party producers and sports associations for content that airs on our television networks. Production contracts generally require purchase of a specified number of episodes, and/or payments over the term of the license, and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place. If the content is ultimately never produced, our commitments expire without obligation. The commitments disclosed above exclude content liabilities recognized on the consolidated balance sheets.

Other purchase obligations include agreements with certain vendors and suppliers for the purchase of goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. Significant purchase obligations include transmission services, television rating services, marketing commitments and research, equipment purchases, and information technology and other services. Some of these contracts do not require the purchase of fixed or minimum quantities and generally may be terminated with a 30-day to 60-day advance notice without penalty, and are not included in the table above past the 30-day to 60-day advance notice period.

Other purchase obligations also include future funding commitments to equity method investees. Although the Company had funding commitments to equity method investees as of June 30, 2022, the Company may also provide uncommitted additional funding to its equity method investments in the future. (See Note 9.)

Pension and other employee obligations include payments to meet minimum funding requirements of our pension plans in 2022, estimated benefit payments for our SERP that exceed plan assets, and employment agreements primarily with creative talent for the WM broadcast networks. Payments for the SERP have been estimated over a ten-year period. While benefit payments under these plans are expected to continue beyond 2031, we believe it is not practicable to estimate payments beyond this period. (See Note 16.)

Six Flags Guarantee

In connection with WM’s former investment in the Six Flags (as defined below) theme parks located in Georgia and Texas (collectively, the “Parks”), in 1997, certain subsidiaries of the Company agreed to guarantee (the “Six Flags Guarantee”) certain obligations of the partnerships that hold the Parks (the “Partnerships”) for the benefit of the limited partners in such Partnerships, including, annual payments made to the Parks or to the limited partners and additional obligations at the end of the respective terms for the Partnerships in 2027 and 2028 (the “Guaranteed Obligations”). The aggregate gross undiscounted estimated future cash flow requirements covered by the Six Flags Guarantee over the remaining term (through 2028) are $544 million. To date, no payments have been made by us pursuant to the Six Flags Guarantee.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Six Flags Entertainment Corporation (formerly known as Six Flags, Inc. and Premier Parks Inc.) (“Six Flags”), which has the controlling interest in the Parks, has agreed, pursuant to a subordinated indemnity agreement (the “Subordinated Indemnity Agreement”), to guarantee the performance of the Guaranteed Obligations when due and to indemnify the Company, among others, if the Six Flags Guarantee is called upon. If Six Flags defaults on its indemnification obligations, we have the right to acquire control of the managing partner of the Parks. Six Flags’ obligations to us are further secured by its interest in all limited partnership units held by Six Flags.

Based on our evaluation of the current facts and circumstances surrounding the Guaranteed Obligations and the Subordinated Indemnity Agreement, the Company is unable to predict the loss, if any, that may be incurred under the Guaranteed Obligations, and no liability for the arrangements has been recognized as of June 30, 2022. Because of the specific circumstances surrounding the arrangements, and the fact that no active or observable market exists for this type of financial guarantee, the Company is unable to determine a current fair value for the Guaranteed Obligations and related Subordinated Indemnity Agreement.

Contingencies

Other Contingent Commitments

Other contingent commitments primarily include contingent payments for post-production term advance obligations on certain co-financing arrangements, as well as operating lease commitment guarantees, letters of credit, bank guarantees and surety bonds, which generally support performance and payments for a wide range of global contingent and firm obligations, including insurance, litigation appeals, real estate leases and other operational needs.

The Company's other contingent commitments at June 30, 2022 were $258 million, with $251 million estimated due in 2026. For other contingent commitments where payment obligations are outside our control, the timing of amounts represents the earliest period in which the payment could be requested. For the remaining other contingent commitments, the timing of amounts presented represents when the maximum contingent commitment will expire but does not mean that we expect to incur an obligation to make any payments within that time period. In addition, these amounts do not reflect the effects of any indemnification rights we might possess.

Put Rights

The Company has granted put rights to non-controlling interest holders in certain consolidated ~~subsidiaries, which may be exercised in 2021.~~subsidiaries.

Legal Matters

From time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including claims related to employees, vendors, other business partners or patent issues. However, a determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgment about future events. Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on the Company's future consolidated financial position, future results of operations or cash flows.

~~NOTE 17. REPORTABLE SEGMENTS~~

The Company’s operating segments are determined based on: (i) financial information reviewed by its chief operating decision maker, the Chief Executive Officer ("CEO"), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions.

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The Company evaluates the operating performance of its operating segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as operating income excluding: (i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction and integration costs, and (viii) other items impacting comparability. The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. The Company believes Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. The Company excludes employee share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions, and acquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes the depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with U.S. GAAP.

~~The tables below present summarized financial information for each of the Company's reportable segments and corporate, inter-segment eliminations, and other (in millions).~~

~~Revenues~~
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
U.S. Networks $ 1,973 $ 1,756 $ 3,779 $ 3,512
International Networks 1,093 783 2,080 1,706
Corporate, inter-segment eliminations and other (4) 2 (5) 6
Total revenues $ 3,062 $ 2,541 $ 5,854 $ 5,224

~~Adjusted OIBDA~~
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
U.S. Networks $ 1,050 $ 1,062 $ 1,873 $ 2,078
International Networks 215 193 366 400
Corporate, inter-segment eliminations and other (148) (128) (285) (238)
Adjusted OIBDA $ 1,117 $ 1,127 $ 1,954 $ 2,240

~~DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Reconciliation of Net Income available to Discovery, Inc. to Adjusted OIBDA~~
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income available to Discovery, Inc. $ 672 $ 271 $ 812 $ 648
Net income attributable to redeemable noncontrolling interests 8 4 13 6
Net income attributable to noncontrolling interests 38 25 84 53
Income tax expense 2 156 108 286
Income before income taxes 720 456 1,017 993
Other (income) expense, net (106) 6 (177) 64
Loss from equity investees, net 7 23 11 44
Loss on extinguishment of debt 1 71 4 71
Interest expense, net 157 161 320 324
Operating income 779 717 1,175 1,496
Gain on disposition (72) 0 (72) 0
Restructuring and other charges 7 7 22 22
Impairment of goodwill and other intangible assets 0 38 0 38
Depreciation and amortization 341 334 702 660
Employee share-based compensation 27 31 88 24
Transaction and integration costs 35 0 39 0
Adjusted OIBDA $ 1,117 $ 1,127 $ 1,954 $ 2,240

NOTE ~~18. RESTRUCTURING AND OTHER CHARGES~~20. REPORTABLE SEGMENTS

~~Restructuring~~The Company’s operating segments are determined based on: (i) financial information reviewed by its chief operating decision maker, the Chief Executive Officer (“CEO”), (ii) internal management and ~~other charges by~~related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions. In conjunction with the Merger, the Company reevaluated and changed its segment presentation and reportable segments ~~and corporate, inter-segment eliminations, and other were as follows (in millions).~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
U.S. Networks $ 1 $ 0 $ 1 $ 12
International Networks 5 3 20 4
Corporate, inter-segment eliminations, and other 1 4 1 6
Total restructuring and other charges $ 7 $ 7 $ 22 $ 22

~~Restructuring charges for~~during the ~~three and six months~~quarter ended June 30, ~~2021~~2022. As of June 30, 2022, we classified our operations in 3 reportable segments: Studios, primarily consisting of the production and ~~2020~~release of feature films for initial exhibition in theaters, production and initial licensing of television programs to third parties and our networks/DTC services, distribution of our films and television programs to various third party and internal television and streaming services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming; Networks, consisting primarily of our domestic and international television networks; and DTC, consisting primarily of our premium pay TV and digital content services. Goodwill was reallocated to the new segments based on relative fair value. Prior periods have been recast to conform to the current period presentation.

The accounting policies of the reportable segments are the same as the Company’s, except that certain inter-segment transactions that are eliminated for consolidation are not eliminated at the segment level. Inter-segment transactions primarily include ~~charges related~~advertising and content licenses. The Company records inter-segment transactions of content licenses at the gross amount. Prior year amounts have been recast to ~~employee relocation and termination costs. During 2020,~~reflect the current presentation. The Company ~~implemented various cost-savings initiatives including personnel reductions, restructurings and resource reallocations~~does not report assets by segment because it is not used to align its expense structure to ongoing changes within the industry, including economic challenges resulting from the COVID-19 pandemic. These actions are intended to enable the Company to more efficiently operate in a leaner and more directed cost structure and are expected to continue in 2021; however, all such amounts cannot be reasonably estimated at this time as the restructuring plans have not been finalized.

~~Changes in restructuring and other liabilities recorded in accrued liabilities by major category were as follows (in millions).~~
U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total
December 31, 2020 $ 23 $ 20 $ 15 $ 58
Employee termination accruals, net 2 20 0 22
Cash paid (14) (22) (9) (45)
June 30, 2021 $ 11 $ 18 $ 6 $ 35

allocate resources or evaluate segment performance.

3140

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company evaluates the operating performance of its operating segments based on financial measures such as revenues and Adjusted EBITDA. Adjusted EBITDA is defined as operating income excluding:

•employee share-based compensation;

•depreciation and amortization;

•restructuring, facility consolidation, and other charges;

•certain impairment charges;

•gains and losses on business and asset dispositions;

•certain inter-segment eliminations;

• third-party transaction and integration costs;

•amortization of purchase accounting fair value step-up for content;

•amortization of capitalized interest for content; and

•other items impacting comparability.

The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. The Company believes Adjusted EBITDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. The Company excludes employee share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions, and transaction and integration costs from the calculation of Adjusted EBITDA due to their impact on comparability between periods. The Company also excludes the depreciation of fixed assets and amortization of intangible assets, amortization of purchase accounting fair value step-up for content, and amortization of capitalized interest for content, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted EBITDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with U.S. GAAP.

The tables below present summarized financial information for each of the Company's reportable segments and corporate, and inter-segment eliminations (in millions).

Revenues


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Studios	$	2,796	$	2	$	2,801	$	7
Networks	5,742		2,844		8,615		5,504
DTC	2,225		216		2,506		343
Corporate	13		—		13		—
Inter-segment eliminations	(949)		—		(949)		—
Total revenues	$	9,827	$	3,062	$	12,986	$	5,854

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Adjusted EBITDA


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Studios	$	239	$	2	$	242	$	4
Networks	2,262		1,538		3,617		2,947
DTC	(518)		(329)		(745)		(819)
Corporate	(305)		(94)		(409)		(178)
Inter-segment eliminations	(14)		—		(14)		—
Adjusted EBITDA	$	1,664	$	1,117	$	2,691	$	1,954

Reconciliation of Net (Loss) Income available to Warner Bros. Discovery, Inc. to Adjusted EBITDA


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(3,418)	$	672	$	(2,962)	$	812
Net income attributable to redeemable noncontrolling interests	3		8		6		13
Net income attributable to noncontrolling interests	7		38		23		84
Income tax (benefit) expense	(836)		2		(635)		108
(Loss) income before income taxes	(4,244)		720		(3,568)		1,017
Other expense (income), net	51		(105)		(439)		(173)
Loss from equity investees, net	43		7		57		11

Interest expense, net	511		157		664		320
Operating (loss) income	(3,639)		779		(3,286)		1,175
Loss (gain) on disposition	4		(72)		4		(72)
Restructuring and other charges	1,033		7		1,038		22

Depreciation and amortization	2,266		341		2,791		702
Employee share-based compensation	147		27		204		88
Transaction and integration costs	983		35		1,070		39
Amortization of fair value step-up for content	870		—		870		—

Adjusted EBITDA	$	1,664	$	1,117	$	2,691	$	1,954

NOTE 21. SUBSEQUENT EVENTS

During July and August 2022, the Company repaid $1.3 billionof aggregate principal amount outstanding of its term loan due April 2025. Additionally, during August 2022, the Company issued $300 million of commercial paper.

In August 2022, the Company, DCL, Scripps Networks, and WMH entered into Amendment 2 to DCL Revolving Credit Agreement and Amendment 1 to WMH Term Loan Credit Agreement to amend the definition of “Consolidated EBITDA” to add back certain cash restructuring costs, charges or expenses subject to a cap equal to 15% of Consolidated EBITDA (prior to giving effect to such add-back).

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes. This section provides additional information regarding ~~Discovery, Inc.’s (“Discovery,” the “Company,” “we,” “us,” or “our”)~~our businesses, current developments, results of operations, cash flows and financial condition. Additional context can also be found in our ~~2020~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

BUSINESS OVERVIEW

~~We are~~On April 8, 2022, Discovery, Inc., a global media company that provides content across multiple distribution platforms including linear, ~~platforms such as pay-television ("pay-TV"),~~ free-to-air and broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer ~~("DTC"~~(“DTC”) subscription ~~products. As one~~products, completed its merger (the "Merger") with the WarnerMedia business (the “WarnerMedia Business”, “WM Business”, or “WM”) of AT&T Inc. (“AT&T”) and changed its name from “Discovery, Inc.” to “Warner Bros. Discovery, Inc.” ("Warner Bros. Discovery", “WBD”, the “Company”, “we”, “us”, or “our”). On April 11, 2022, the Company’s shares started trading on the Nasdaq Global Select Market (the “Nasdaq”) under the trading symbol WBD. (See Note 3 to the accompanying consolidated financial statements.)

Warner Bros. Discovery is a leading global media and entertainment company that creates and distributes the world’s ~~largest pay-TV programmers, we provide original~~most differentiated and ~~purchased~~complete portfolio of content and ~~live events to approximately 3.7 billion cumulative subscribers~~brands across television, film and ~~viewers~~streaming. Available in more than 220 countries and territories and 50 languages, Warner Bros. Discovery inspires, informs and entertains audiences worldwide through ~~networks that we wholly or partially own.~~its iconic brands and products including: Discovery Channel, discovery+, CNN, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, Warner Bros. Television, Warner Bros. Games, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV and others.

In conjunction with the Merger, the Company reevaluated and changed its segment presentation and reportable segments for the quarter ending June 30, 2022. As of June 30, ~~2021,~~2022, we ~~had 17 million total paid~~ classified our operations in three reportable segments:

Studios, consisting primarily of the production and release of feature films for initial exhibition in theaters, production and initial licensing of television programs to third parties and our networks/DTC subscribers. We define a subscription as (i) a subscription to a direct-to-consumer product for which we have recognized subscription revenue from a direct-to-consumer platform; (ii) a subscription received through wholesale arrangements in which we receive a fee for theservices, distribution of our ~~direct-to-consumer platforms, as well as subscriptions provided directly or~~films and television programs to various third party and internal television and streaming services, distribution through ~~third-party platforms;~~the home entertainment market (physical and ~~(iii) a subscription recognized by certain joint venture partners~~digital), related consumer products and ~~affiliated parties. We may refer to the aggregate number of subscriptions across our direct-to-consumer services as subscribers. A subscriber is only counted if they are on a paying status~~themed experience licensing, and excludes users on free trials. We distribute customized content in the U.S. and over 220 other countries and territories in nearly 50 languages. We have an extensive library of content and own most rights to our content and footage, which enables us to leverage our library to quickly launch brands and services into new markets and on new platforms. Our content can be re-edited and updated in a cost-effective manner to provide topical versions of subject matter that can be utilized around the world on a variety of platforms.interactive gaming;

Our content spans genres including survival, natural history, exploration, sports, general entertainment, home, food, travel, heroes, adventure, crime and investigation, health, and kids. Our global portfolio of networks includes prominent nonfiction television brands such as Discovery Channel, our most widely distributed global brand, HGTV, Food Network, TLC, Animal Planet, Investigation Discovery, Travel Channel, Science, and MotorTrend (previously known as Velocity domestically and currently known as Turbo in most international countries). Among other networks in the U.S., Discovery also features two Spanish-language services, Discovery en Español and Discovery Familia. Our international portfolio also includes Eurosport, a leading sports entertainment provider and broadcaster of the Olympic Games (the "Olympics") across Europe (excluding Russia), TVN, a Polish media company, as well as Discovery Kids, a leading children's entertainment brand in Latin America. We participate in joint ventures including Magnolia, the recently formed multi-platform venture with Chip and Joanna Gaines, and Group Nine Media, a digital media holding company home to top digital brands including NowThis News, the Dodo, Thrillist, PopSugar, and Seeker. We also operate production studios.

During the fourth quarter of 2020, we announced the global launch of our aggregated DTC product, discovery+, a non-fiction, real life subscription service. In January 2021, we launched discovery+ in the U.S. across several streaming platforms and entered into a partnership with Verizon, which is offering access to discovery+ for up to 12 months to certain of its customers. The global rollout of discovery+ across more than 25 markets has already begun with the U.K. and Ireland, where we have partnered with Sky, and India. We also have a partnership with Vodafone, which will provide discovery+ to existing Vodafone TV and mobile customers in 12 markets across Europe. Upon launch in the U.S., discovery+ included an extensive content library comprised of more than 55,000 episodes and features a wide array of exclusive, original series from the Discovery portfolio of brands that have a strong leadership position. The service is available with ads or on an ad-free tier, providing us with dual revenue streams.

We invest in high-quality content for our networks and brands with the objective of building viewership, optimizing distribution revenue, capturing advertising revenue, and creating or repositioning branded channels and business to sustain long-term growth and occupy a desired content niche with strong consumer appeal. Our strategy is to maximize the distribution, ratings and profit potential of each of our branded networks. In addition to growing distribution and advertising revenues for our branded networks, we have extended content distribution across new platforms, including brand-aligned websites, online streaming platforms, including discovery+, mobile devices, video on demand, and broadband channels, which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue. Audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators, direct-to-home satellite operators, telecommunication service providers, and other content distributors who deliver our content to their customers.

Networks,

~~Although we utilize certain brands and content globally, we classify our operations in two reportable segments: U.S. Networks,~~ consisting principally of our domestic and international television ~~networks~~networks; and

DTC, consisting primarily of our premium pay TV and digital content ~~services, and International Networks, consisting primarily of international television networks and digital content~~ services.

Our segment presentation ~~aligns~~aligned with our management structure and the financial information management uses to make decisions about operating matters, such as the allocation of resources and business performance assessments.

~~WarnerMedia~~

~~In May 2021, we entered into an agreement with AT&T Inc.~~ Prior periods have been recast to combine WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets with our nonfiction and international entertainment and sports businesses to create a standalone, global entertainment company.

The proposed combination transaction will be executed through a Reverse Morris Trust type transaction, under which WarnerMedia will be distributed to AT&T’s shareholders via dividend or through an exchange offer or a combination of both and immediately thereafter, combined with Discovery. In connection with the combination transaction, AT&T will receive $43 billion (subject to adjustment) in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. We are in the process of establishing an interest rate derivative program to mitigate interest rate risk associated with the anticipated issuance of future fixed-rate debt.

Upon closing, all shares of Series A, Series B, and Series C common stock and Series A-1 and Series C-1 convertible preferred stock will be reclassified and converted to one class of Discovery common stock. AT&T’s shareholders will receive stock representing 71% of the new company and Discovery shareholders will own 29% of the new company. The Boards of Directors of both AT&T and Discovery have approved the transaction.

The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. Agreements are in place with Dr. John Malone and Advance/Newhouse Programming Partnership to vote in favor of the transaction. The transaction requires, among other things, the consent of Advance/Newhouse Programming Partnership under the Company's certificate of incorporation as the sole holder the Series A-1 Preferred Stock. In exchange for Advance/Newhouse Programming Partnership providing its consentconform to the ~~proposed combination transaction, which~~current period presentation.

During the three months ended March 31, 2022, we exited our operations in Russia and removed all of our channels and services from the market. We do not expect these actions will result in the forfeiture of its significant approval rights pursuant to the terms of the Series A-1 Preferred Stock and reclassification of the shares of Series A-1 Preferred Stock into common stock, it will receivehave a premium in the form of an increase to the number of shares of common stock of Discovery into which the Series A-1 Preferred Stock would be converted. Upon the closing, such premium will be recorded as a transaction expense. No vote by AT&T shareholders is required.

~~The merger agreement contains certain customary termination rights for Discovery and AT&T, including, without limitation, a right for either party to terminate if the transaction is not completed~~material effect on ~~or before July 15, 2023. Termination under specified circumstances will require Discovery to pay AT&T a termination fee of $720 million or AT&T to pay Discovery a termination fee of $1.8 billion.~~

In anticipation of this combination, in June 2021, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan that will be guaranteed by the Company and certain material subsidiaries of the Company upon closing of the transaction.our consolidated financial statements.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain. We continue to closely monitor the ongoing impact of COVID-19 on all aspects of our business and geographies, including the impact on our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties.

~~Beginning~~ Certain key sources of revenue for WM, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the ~~second quarter~~context of ~~2020, demand for our advertising products~~public entertainment venues, such as cinemas and services decreased due to economic disruptions from limitations on social and commercial activity. These economic disruptions and the resulting effect on the Company eased during the second half of 2020. We currently do not expect the pandemic will have a significant impact on demand during fiscal year 2021. Many of our third-party production partners that were shut down during most of the second quarter of 2020 due to COVID-19 restrictions came back online in the third quarter of 2020 and, as a result, we have incurred additional costs to comply with various governmental regulations and implement certain safety measures for our employees, talent, and partners. Additionally, certain sporting events that we have rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which were rescheduled to July and August 2021. The postponement of the Olympic Games deferred both Olympic-related revenues and significant expenses from fiscal year 2020 to fiscal year 2021.

In response to the impact of the pandemic, we employed and continue to employ innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air. We continue to pursue a number of cost savings initiatives, which began during the third quarter of 2020 through the implementation of travel, marketing, production and other operating cost reductions, including personnel reductions, restructurings and resource reallocations to align our expense structure to ongoing changes within the industry.theme parks.

The nature and full extent of COVID-19’s effects on our operations and results isare not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future variants or surges of COVID-19, vaccine distribution and efficacy and other actions to contain the virus or treat its impact, among others. ~~We will continue to monitor COVID-19 and its impact on our business results and financial condition.~~ Our consolidated financial statements reflect management’s ~~latest~~ estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

3443

RESULTS OF OPERATIONS

The discussion below compares our actual and pro forma combined results, as if the Merger occurred on January 1, 2021, for the three and six months ended June 30, 2022 to the three and six months ended June 30, 2021. Management believes reviewing our pro forma combined operating results in addition to actual operating results is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of our businesses. Our combined Studios, Networks, DTC, Corporate, and inter-segment eliminations pro forma information is based on the historical operating results of the respective segments and includes adjustments in accordance with Article 11 of Regulation S-X to illustrate the effects of the Merger as if it had occurred on January 1, 2021. The unaudited pro forma combined results include, where applicable, adjustments for (i) additional costs of revenues from the fair value step up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) adjustments for transaction costs and other one-time non-recurring costs, (v) changes to align accounting policies, and (vi) adjustments to eliminate intercompany activity.

Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the combined businesses since January 1, 2021 and should not be taken as indicative of the Company's future consolidated results of operations.

Actual amounts for the three and six months ended June 30, 2022 include results of operations for Discovery for the entire period and WM for the period subsequent to the completion of the Merger on April 8, 2022.

Foreign Exchange Impacting Comparability

~~The~~In addition to the Merger, the impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis ~~("ex-FX"~~(“ex-FX”), in addition to results reported in accordance with U.S. ~~GAAP~~generally accepted accounting principles (“U.S. GAAP”) provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with U.S. GAAP.

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the ~~“2021~~“2022 Baseline Rate”), and the prior year amounts translated at the same ~~2021~~2022 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

Consolidated Results of Operations

The table below presents our consolidated results of operations (in millions).
Three Months Ended June 30,
2021 2020 % Change % Change (ex-FX)
Revenues:
Advertising $ 1,637 $ 1,273 29 % 26 %
Distribution 1,368 1,225 12 % 10 %
Other 57 43 33 % 32 %
Total revenues 3,062 2,541 21 % 18 %
Costs of revenues, excluding depreciation and amortization 1,055 810 30 % 25 %
Selling, general and administrative 952 635 50 % 46 %
Depreciation and amortization 341 334 2 % — %
Impairment of goodwill and other intangible assets — 38 NM NM
Restructuring and other charges 7 7 — % — %
Gain on disposition (72) — NM NM
Total costs and expenses 2,283 1,824 25 % 21 %
Operating income 779 717 9 % 10 %
Interest expense, net (157) (161) (2) %
Loss on extinguishment of debt (1) (71) (99) %
Loss from equity investees, net (7) (23) (70) %
Other income (expense), net 106 (6) NM
Income before income taxes 720 456 58 %
Income tax expense (2) (156) (99) %
Net income 718 300 NM
Net income attributable to noncontrolling interests (38) (25) 52 %
Net income attributable to redeemable noncontrolling interests (8) (4) NM
Net income available to Discovery, Inc. $ 672 $ 271 NM


	Three Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Advertising	$	2,721	$	178	$	2,899	$	1,634	$	1,191	$	2,825	67	%	3	%	5	%
Distribution	4,838		343		5,181		1,312		3,956		5,268		NM		(2)	%	—	%
Content	2,064		446		2,510		100		2,842		2,942		NM		(15)	%	(12)	%
Other	204		29		233		16		160		176		NM		32	%	32	%
Total revenues	9,827		996		10,823		3,062		8,149		11,211		NM		(3)	%	(1)	%
Costs of revenues, excluding depreciation and amortization	6,625		667		7,292		1,055		5,619		6,674		NM		9	%	12	%
Selling, general and administrative	3,538		(553)		2,985		952		1,865		2,817		NM		6	%	8	%
Depreciation and amortization	2,266		(425)		1,841		341		1,725		2,066		NM		(11)	%	(10)	%

Restructuring and other charges	1,033		(89)		944		7		—		7		NM		NM		NM
Loss (gain) on disposition	4		—		4		(72)		—		(72)		NM		NM		NM
Total costs and expenses	13,466		(400)		13,066		2,283		9,209		11,492		NM		14	%	NM
Operating (loss) income	(3,639)		1,396		(2,243)		779		(1,060)		(281)		NM		NM		NM
Interest expense, net	(511)						(157)						NM

Loss from equity investees, net	(43)						(7)						NM
Other (expense) income, net	(51)						105						NM
(Loss) income before income taxes	(4,244)						720						NM
Income tax benefit (expense)	836						(2)						NM
Net (loss) income	(3,408)						718						NM
Net income attributable to noncontrolling interests	(7)						(38)						(82)	%
Net income attributable to redeemable noncontrolling interests	(3)						(8)						(63)	%
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(3,418)					$	672					NM

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

NM - Not meaningful

3545


											Six Months Ended June 30,
		Six Months Ended June 30,									2022						2021						% Change
		2021		2020		% Change		% Change (ex-FX)			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:	Revenues:									Revenues:
Advertising	Advertising	$	3,052	$	2,675	14	%	12	%	Advertising	$	4,197	$	1,412	$	5,609	$	3,043	$	2,442	$	5,485	38	%	2	%	4	%
Distribution	Distribution	2,678		2,448		9	%	8	%	Distribution	6,190		4,339		10,529		2,570		7,782		10,352		NM		2	%	3	%
Content										Content	2,387		3,297		5,684		212		5,565		5,777		NM		(2)	%	1	%
Other	Other	124		101		23	%	21	%	Other	212		230		442		29		290		319		NM		39	%	39	%
Total revenues	Total revenues	5,854		5,224		12	%	10	%	Total revenues	12,986		9,278		22,264		5,854		16,079		21,933		NM		2	%	3	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	2,024		1,728		17	%	13	%	Costs of revenues, excluding depreciation and amortization	7,861		5,940		13,801		2,024		10,908		12,932		NM		7	%	8	%
Selling, general and administrative	Selling, general and administrative	2,003		1,280		56	%	53	%	Selling, general and administrative	4,578		1,733		6,311		2,003		4,504		6,507		NM		(3)	%	(2)	%
Depreciation and amortization	Depreciation and amortization	702		660		6	%	4	%	Depreciation and amortization	2,791		987		3,778		702		3,522		4,224		NM		(11)	%	(10)	%
Impairment of goodwill and other intangible assets		—		38		NM		NM

Restructuring and other charges	Restructuring and other charges	22		22		—	%	—	%	Restructuring and other charges	1,038		(90)		948		22		91		113		NM
Gain on disposition		(72)		—		NM		NM
Loss (gain) on disposition										Loss (gain) on disposition	4		—		4		(72)		—		(72)		NM
Total costs and expenses	Total costs and expenses	4,679		3,728		26	%	22	%	Total costs and expenses	16,272		8,570		24,842		4,679		19,025		23,704		NM		5	%	NM
Operating income		1,175		1,496		(21)	%	(20)	%
Operating (loss) income										Operating (loss) income	(3,286)		708		(2,578)		1,175		(2,946)		(1,771)		NM		46	%	NM
Interest expense, net	Interest expense, net	(320)		(324)		(1)	%			Interest expense, net	(664)						(320)						NM
Loss on extinguishment of debt		(4)		(71)		(94)	%

Loss from equity investees, net	Loss from equity investees, net	(11)		(44)		(75)	%			Loss from equity investees, net	(57)						(11)						NM
Other income (expense), net	Other income (expense), net	177		(64)		NM				Other income (expense), net	439						173						NM
Income before income taxes		1,017		993		2	%
Income tax expense		(108)		(286)		(62)	%
Net income		909		707		29	%
(Loss) Income before income taxes										(Loss) Income before income taxes	(3,568)						1,017						NM
Income tax benefit (expense)										Income tax benefit (expense)	635						(108)						NM
Net (loss) income										Net (loss) income	(2,933)						909						NM
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(84)		(53)		58	%			Net income attributable to noncontrolling interests	(23)						(84)						(73)	%
Net income attributable to redeemable noncontrolling interests	Net income attributable to redeemable noncontrolling interests	(13)		(6)		NM				Net income attributable to redeemable noncontrolling interests	(6)						(13)						(54)	%
Net income available to Discovery, Inc.		$	812	$	648	25	%
Net (loss) income available to Warner Bros. Discovery, Inc.										Net (loss) income available to Warner Bros. Discovery, Inc.	$	(2,962)					$	812					NM

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.										(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

The discussion through operating income below is on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and adjusted EBITDA are substantially attributable to the Merger.

Revenues

Advertising revenue is dependent upon a number of factors, including the stage of development of television markets, the number of subscribers to our channels, viewership demographics, the popularity of our content, our ability to sell commercial time over a group of channels, market demand, the mix in sales of commercial time between the upfront and scatter markets, and economic conditions. These factors impact the pricing and volume of our advertising inventory.

Advertising revenue increased ~~29%~~5% and ~~14%~~4% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, advertising revenue increased 26% and 12% for the three and six months ended June 30, 2021, respectively. The increase for the three and six months ended June 30, 2021 was2022, respectively, primarily attributable t~~o improved overall~~to increased sports advertising in the U.S., the launch of the HBO Max ad-supported tier product in June 2021, and subscriber growth at discovery+ ad-lite tier, partially offset by lower news, kids, and general entertainment performance in ~~International Networks as advertising markets have recovered from~~ the ~~impact of COVID-19.~~U.S.

Distribution revenue consists principally of fees from affiliates for distributing our linear networks ~~supplemented by revenue earned from subscription video on demand content licensing~~ and DTC subscription services.

Distribution revenue was flat for the three months ended June 30, 2022 and increased 3% for the six months ended June 30, 2022, respectively. While distribution revenue was flat for the three months ended June 30, 2022, a decline in linear subscribers in the U.S. and lower contractual affiliate rates in some European markets were largely offset by an increase in U.S. contractual affiliate rates. The increase for the six months ended June 30, 2022 was primarily attributable to global retail DTC subscriber gains at discovery+ and HBO Max, partially offset by lower domestic wholesale DTC subscribers at HBO Max due to the Amazon Channels expiration in September 2021.

Content revenue consists primarily of licensing feature films for initial theatrical exhibition, and licensing television programs for initial television broadcast or streaming; additionally, film and television content is licensed through distribution channels including international free-to-air, basic and premium pay television, television syndication, and further streaming services. Content revenue also includes home entertainment sales and rentals of film and television products (physical and digital, including premium video-on-demand, transactional video-on-demand and electronic sell-through), interactive entertainment sales (physical and digital) across various platforms, and consumer products and themed experience licensing.

Content revenue decreased 12% and 9%increased 1% for the three and six months ended June 30, ~~2021,~~2022, respectively. ~~Excluding~~The decrease for the ~~impact~~three months ended June 30, 2022 is primarily attributable to the proportion of ~~foreign currency fluctuations, distribution~~inter-segment licensing increasing as a percentage of total content revenue. The increase for the six months ended June 30, 2022 is primarily attributable to higher third party international licensing of sports rights.

Other revenue increased ~~10%~~32% and 8%39% for the three and six months ended June 30, ~~2021, respectively. The increase for the three and six months ended June 30, 2021 was~~2022, respectively, primarily attributable to ~~an increase~~increased studio operations revenues from the reopening of ~~12% at U.S. Networks due to~~ ~~discovery+ and an increase in contractual affiliate rates, partially offset by a decline in linear subscribers and certain prior year non-recurring items~~

~~Other revenue increased 33% and 23% for~~ the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, other revenue increased 32% and 21% for the three and six months ended June 30, 2021, respectively.Warner Bros. Studio Tour London.

Revenue for our segments is discussed separately below under the heading “Segment Results of Operations.”

Costs of Revenues

The Company's principal component of costs of revenues is content expense. Content expense includes television series, television specials, films, sporting events, and digital products. The costs of producing a content asset and bringing that asset to market consist of ~~film~~production costs, participation costs, and exploitation ~~costs and production~~ costs.

~~Costs~~Cost of revenues increased ~~30%~~12% and ~~17%~~8% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, cost of revenues increased 25% and 13% for the three and six months ended June 30, 2021, respectively. The increase for the three and six months ended June 30, 2021, was2022, respectively, primarily attributable to ~~European sporting events~~increased investments in DTC programming expenses, higher games and ~~leagues returning to a more normalized schedule~~theatrical content expenses, and ~~higher content investment related to discovery+.~~sports rights.

Selling, General and Administrative

Selling, general and administrative expenses consist principally of employee costs, marketing costs, research costs, occupancy and back office support fees.

Selling, general and administrative expenses increased ~~50%~~8% and ~~56%~~decreased 2% for the three and six months ended June 30, ~~2021,~~2022, respectively. ~~Excluding the impact of foreign currency fluctuations, selling,~~Selling, general, and administrative expenses increased ~~46% and 53%~~ for the three months ended June 30, 2022, primarily attributable to increased third-party transaction and integration costs related to the Merger and share-based compensation. Selling, general, and administrative expenses decreased for the six months ended June 30, ~~2021, respectively. The increase for the three and six months ended June 30, 2021 was~~2022, primarily attributable to ~~higher~~lower marketing-related ~~expenses to support the launch discovery+ at U.S. Networks and International Networks.~~expenses.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization ~~increased 2%~~decreased $214 million and 6% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, depreciation and amortization was flat and increased 4% for the three and six months ended June 30, 2021, respectively. The increase for the six months ended June 30, 2021 was$429 million, respectively, primarily attributable to ~~assets placed~~a change in ~~service related~~amortization method from the straight-line method to the ~~launch~~sum of ~~discovery+.~~the years' digits method for some of the WM assets acquired.

Restructuring and Other Charges

Restructuring and other charges ~~were $7~~increased $937 million and ~~$22~~$836 million for the three and six months ended June 30, ~~2021~~2022, respectively, primarily attributable to content impairments from a global strategic review of content and ~~2020, respectively. Restructuring~~employee terminations related to cost reduction efforts and ~~other charges primarily include employee relocation and termination costs during~~management changes as a result of the ~~three and six months ended June 30, 2021 and 2020.~~Merger. (See Note 185 to the accompanying consolidated financial statements.)

~~Gain~~Loss (Gain) on Disposition

Gain on disposition was $72 million for the three and six months ended June 30, 2021, and was primarily attributable to the sale of our Great American Country network. (See Note 23 to the accompanying consolidated financial statements.)

Interest Expense, net

Interest expense, net ~~decreased 2%~~increased $354 million and 1%$344 million for the three and six months ended June 30, ~~2021 compared~~2022, respectively, primarily attributable to assumed debt as a result of the ~~prior year period.~~Merger. (See Note 710 and Note 812 to the accompanying consolidated financial statements.)

Loss ~~from equity investees,~~From Equity Investees, net

We reported losses from our equity method investees of $43 million and$57 million for the three and six months ended June 30, 2022, as compared to losses of $7 million and $11 million for the three and six months ended June 30, 2021, ~~respectively, as compared to losses of $23 million and $44 million for the three and six months ended June 30, 2020,~~ respectively. The changes are attributable to our share of earnings and losses from our equity investees. (See Note 39 to the accompanying consolidated financial statements.)

Other (Expense) Income, ~~(Expense),~~ net

The table below presents the details of other (expense) income, ~~(expense),~~ net (in millions).
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Foreign currency (loss) gain, net $ (5) $ (18) $ 47 $ (29)
(Losses) gains on derivative instruments, net (1) 4 (21) (23)
Change in the value of investments with readily determinable fair value 29 7 46 (15)
Change in the value of equity investments without readily determinable fair value 81 (2) 81 (2)
Gain on sale of investment with readily determinable fair value — — 16 —
(Loss) gain on sale of equity method investments (1) 3 4 3
Interest income 2 1 3 5
Other expense, net 1 (1) 1 (3)
Total other income (expense), net $ 106 $ (6) $ 177 $ (64)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Foreign currency (losses) gain, net	$	(81)	$	(5)	$	(70)	$	47
(Losses) gains on derivative instruments, net	(24)		(1)		473		(21)

Change in the value of investments with readily determinable fair value	(70)		29		(90)		46
Gain on sale of equity method investments	133		(1)		133		4
Change in fair value of equity investments without readily determinable fair value	—		81		—		81



Other (expense) income, net	(9)		2		(7)		16
Total other (expense) income, net	$	(51)	$	105	$	439	$	173

Income Tax ~~Expense~~Benefit (Expense)

Income tax benefit was $836 million and $635 million for the three and six months ended June 30, 2022, respectively, and income tax expense was $2 million and $108 million for the three and six months ended June 30, 2021, ~~respectively, and $156 million and $286 million for~~respectively. The decrease in the three ~~and six~~ months ended June 30, ~~2020, respectively.~~ 2022 was primarily attributable to a decrease in pre-tax book income.The decrease is partially offset by the unfavorable tax adjustment related to the preferred stock conversion transaction expensediscussed in ~~income tax expense for~~Note 2 recorded in the three ~~and six~~ months ended June 30, ~~2021~~2022 that was ~~primarily attributable to~~not deductible for tax purposes and a deferred tax benefit of $162 million recorded in the three months ended June 30, 2021 as a result of the UK Finance Act 2021 that was enacted in June 2021.

Income tax ~~expense~~benefit for the three and six months ended June 30, ~~2021~~2022 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to ~~a deferred tax benefit of $162 million as a result of the UK Finance Act 2021 that was enacted in June 2021,~~ the effect of foreign operations, which included taxation and allocation of income and losses among multiple foreign jurisdictions, state and local income taxes, and ~~favorable noncontrolling interest tax adjustments.~~

the non-tax deductible preferred stock conversion transaction expense discussed above.

Segment Results of Operations

~~We evaluate~~The Company evaluates the operating performance of ~~our~~its operating segments based on financial measures such as revenues and Adjusted ~~OIBDA.~~EBITDA. Adjusted ~~OIBDA~~EBITDA is defined as operating income excluding: ~~(i)~~

•employee share-based ~~compensation, (ii)~~ compensation;

•depreciation and ~~amortization, (iii)~~ amortization;

•restructuring, facility consolidation, and other ~~charges, (iv)~~ charges;

•certain impairment ~~charges, (v)~~ charges;

•gains and losses on business and asset ~~dispositions, (vi)~~ dispositions;

•certain inter-segment ~~eliminations related to production studios, (vii)~~eliminations;

• third-party transaction and integration ~~costs,~~costs;

•amortization of purchase accounting fair value step-up for content;

•amortization of capitalized interest for content; and ~~(viii)~~

•other items impacting comparability. ~~We use~~

The Company uses this measure to assess the operating results and performance of ~~our~~its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. ~~We believe~~The Company believes Adjusted ~~OIBDA~~EBITDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. ~~We exclude~~The Company excludes employee share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions, and ~~acquisition~~transaction and integration costs from the calculation of Adjusted ~~OIBDA~~EBITDA due to their impact on comparability between periods. WeThe Company also ~~exclude~~excludes the depreciation of fixed assets and amortization of intangible assets, amortization of purchase accounting fair value step-up for content, and amortization of capitalized interest for content, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted ~~OIBDA~~EBITDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with U.S. GAAP.

The ~~tables~~table below ~~present~~presents our reconciliation of consolidated net income available to Warner Bros. Discovery, Inc. to Adjusted ~~OIBDA~~EBITDA and Adjusted ~~OIBDA~~EBITDA by segment (in millions).
Three Months Ended June 30,
2021 2020 % Change
Net income available to Discovery, Inc. $ 672 $ 271 NM
Net income attributable to redeemable noncontrolling interests 8 4 NM
Net income attributable to noncontrolling interests 38 25 52 %
Income tax expense 2 156 (99) %
Income before income taxes 720 456 58 %
Other (income) expense, net (106) 6 NM
Loss from equity investees, net 7 23 (70) %
Loss on extinguishment of debt 1 71 (99) %
Interest expense, net 157 161 (2) %
Operating income 779 717 9 %
Gain on disposition (72) — NM
Restructuring and other charges 7 7 — %
Impairment of goodwill and other intangible assets — 38 NM
Depreciation and amortization 341 334 2 %
Employee share-based compensation 27 31 (13) %
Transaction and integration costs 35 — NM
Adjusted OIBDA $ 1,117 $ 1,127 (1) %
Adjusted OIBDA
U.S. Networks $ 1,050 $ 1,062 (1) %
International Networks 215 193 11 %
Corporate, inter-segment eliminations, and other (148) (128) (16) %
Adjusted OIBDA $ 1,117 $ 1,127 (1) %


	Three Months Ended June 30,
	2022		2021		% Change
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(3,418)	$	672	NM
Net income attributable to redeemable noncontrolling interests	3		8		(63)	%
Net income attributable to noncontrolling interests	7		38		(82)	%
Income tax (benefit) expense	(836)		2		NM
(Loss) income before income taxes	(4,244)		720		NM
Other expense (income), net	51		(105)		NM
Loss from equity investees, net	43		7		NM

Interest expense, net	511		157		NM
Operating (loss) income	(3,639)		779		NM
Loss (gain) on disposition	4		(72)		NM
Restructuring and other charges	1,033		7		NM

Depreciation and amortization	2,266		341		NM
Employee share-based compensation	147		27		NM
Transaction and integration costs	983		35		NM

Amortization of fair value step-up for content	870		—		NM

Adjusted EBITDA	$	1,664	$	1,117	49	%

Adjusted EBITDA
Studios	$	239	$	2	NM
Networks	2,262		1,538		47	%
DTC	(518)		(329)		57	%
Corporate	(305)		(94)		NM
Inter-segment eliminations	(14)		—		NM
Adjusted EBITDA	$	1,664	$	1,117	49	%

3849

Six Months Ended June 30,
2021 2020 % Change
Net income available to Discovery, Inc. $ 812 $ 648 25 %
Net income attributable to redeemable noncontrolling interests 13 6 NM
Net income attributable to noncontrolling interests 84 53 58 %
Income tax expense 108 286 (62) %
Income before income taxes 1,017 993 2 %
Other (income) expense, net (177) 64 NM
Loss from equity investees, net 11 44 (75) %
Loss on extinguishment of debt 4 71 (94) %
Interest expense, net 320 324 (1) %
Operating income 1,175 1,496 (21) %
Gain on disposition (72) — NM
Restructuring and other charges 22 22 — %
Impairment of goodwill and other intangible assets — 38 NM
Depreciation and amortization 702 660 6 %
Employee share-based compensation 88 24 NM
Transaction and integration costs 39 — NM
Adjusted OIBDA $ 1,954 $ 2,240 (13) %
Adjusted OIBDA
U.S. Networks $ 1,873 $ 2,078 (10) %
International Networks 366 400 (9) %
Corporate, inter-segment eliminations, and other (285) (238) (20) %
Adjusted OIBDA $ 1,954 $ 2,240 (13) %


	Six Months Ended June 30,
	2022		2021		% Change
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(2,962)	$	812	NM
Net income attributable to redeemable noncontrolling interests	6		13		(54)	%
Net income attributable to noncontrolling interests	23		84		(73)	%
Income tax (benefit) expense	(635)		108		NM
(Loss) income before income taxes	(3,568)		1,017		NM
Other (income) expense, net	(439)		(173)		NM
Loss from equity investees, net	57		11		NM

Interest expense, net	664		320		NM
Operating (loss) income	(3,286)		1,175		NM
Loss (gain) on disposition	4		(72)		NM
Restructuring and other charges	1,038		22		NM

Depreciation and amortization	2,791		702		NM
Employee share-based compensation	204		88		NM
Transaction and integration costs	1,070		39		NM

Amortization of fair value step-up for content	870		—		NM

Adjusted EBITDA	$	2,691	$	1,954	38	%

Adjusted EBITDA
Studios	$	242	$	4	NM
Networks	3,617		2,947		23	%
DTC	(745)		(819)		(9)	%
Corporate	(409)		(178)		NM
Inter-segment eliminations	(14)		—		NM
Adjusted EBITDA	$	2,691	$	1,954	38	%

The table below presents the calculation of Adjusted ~~OIBDA~~EBITDA (in millions).


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2021		2020		% Change		2021		2020		% Change			2022		2021		% Change		2022		2021		% Change
Revenues:	Revenues:													Revenues:
U.S. Networks		$	1,973	$	1,756	12	%	$	3,779	$	3,512	8	%
International Networks		1,093		783		40	%	2,080		1,706		22	%
Corporate, inter-segment eliminations, and other		(4)		2		NM		(5)		6		NM
Studios														Studios	$	2,796	$	2	NM		$	2,801	$	7	NM
Networks														Networks	5,742		2,844		NM		8,615		5,504		57	%
DTC														DTC	2,225		216		NM		2,506		343		NM
Corporate														Corporate	13		—		NM		13		—		NM
Inter-segment eliminations														Inter-segment eliminations	(949)		—		NM		(949)		—		NM
Total revenues	Total revenues	3,062		2,541		21	%	5,854		5,224		12	%	Total revenues	9,827		3,062		NM		12,986		5,854		NM
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	1,055		810		30	%	2,024		1,728		17	%	Costs of revenues, excluding depreciation and amortization	5,755		1,055		NM		6,991		2,024		NM
Selling, general and administrative (a)	Selling, general and administrative (a)	890		604		47	%	1,876		1,256		49	%	Selling, general and administrative (a)	2,408		890		NM		3,304		1,876		76	%
Adjusted OIBDA		$	1,117	$	1,127	(1)	%	$	1,954	$	2,240	(13)	%
Adjusted EBITDA														Adjusted EBITDA	$	1,664	$	1,117	49	%	$	2,691	$	1,954	38	%

(a) Selling, general and administrative expenses excludes employee share-based compensation and third-party transaction and integration costs.	(a) Selling, general and administrative expenses excludes employee share-based compensation and third-party transaction and integration costs.													(a) Selling, general and administrative expenses excludes employee share-based compensation and third-party transaction and integration costs.

3950

Studios Segment

The following tables present, for our Studio segment, revenues by type, certain operating expenses, Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating income (in millions).


	Three Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Advertising	$	10	$	—	$	10	$	—	$	27	$	27	NM	(63)	%	(63)	%
Distribution	4		1		5		—		5		5		NM	—	%	—	%
Content	2,636		551		3,187		2		3,195		3,197		NM	—	%	3	%
Other	146		16		162		—		104		104		NM	56	%	56	%
Total revenues	2,796		568		3,364		2		3,331		3,333		NM	1	%	4	%
Costs of revenues, excluding depreciation and amortization	2,006		328		2,334		—		2,244		2,244		NM	4	%	6	%
Selling, general and administrative	551		70		621		—		650		650		NM	(4)	%	(2)	%
Adjusted EBITDA	239		170		409		2		437		439		NM	(7)	%	—	%
Depreciation and amortization	158		(21)		137		—		172		172
Employee share-based compensation	—		1		1		—		11		11

Restructuring and other charges	200		(38)		162		—		—		—



Amortization of fair value step-up for content	563		(238)		325		—		380		380
Operating (loss) income	$	(682)	$	466	$	(216)	$	2	$	(126)	$	(124)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.


	Six Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Advertising	$	10	$	9	$	19	$	—	$	48	$	48	NM	(60)	%	(60)	%
Distribution	4		6		10		—		8		8		NM	25	%	25	%
Content	2,641		3,898		6,539		7		6,259		6,266		NM	4	%	7	%
Other	146		154		300		—		185		185		NM	62	%	62	%
Total revenues	2,801		4,067		6,868		7		6,500		6,507		NM	6	%	8	%
Costs of revenues, excluding depreciation and amortization	2,007		2,392		4,399		2		4,334		4,336		NM	1	%	3	%
Selling, general and administrative	552		698		1,250		1		1,301		1,302		NM	(4)	%	(2)	%
Adjusted EBITDA	242		977		1,219		4		865		869		NM	40	%	46	%
Depreciation and amortization	158		115		273		—		345		345
Employee share-based compensation	—		26		26		—		61		61

Restructuring and other charges	200		(38)		162		—		38		38



Amortization of fair value step-up for content	563		106		$	669	—		1,032		1,032
Operating (loss) income	$	(679)	$	768	$	89	$	4	$	(611)	$	(607)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

The discussion below is on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and adjusted EBITDA are substantially attributable to the Merger.

Revenues

Content revenue increased 3% and 7% for the three and six months ended June 30, 2022, respectively. The increase for the three months ended June 30, 2022 was primarily attributable to higher games revenue with the release of LEGO Star Wars - The Skywalker Saga, partially offset by lower TV licensing, home entertainment and theatrical rental revenue. The decrease in TV licensing was primarily attributable to lower TV production revenue, partially offset by the timing of new series availabilities. Theatrical performance was unfavorably impacted by the timing of releases, and home entertainment across theatrical and television product was lower due to strong COVID-induced demand in the prior year quarter.

The increase for the six months ended June 30, 2022 was primarily attributable to higher theatrical film rental revenue and TV licensing revenue, partly offset by lower home entertainment revenue. Theatrical performance was favorably impacted by performance of The Batman, which was released in the first quarter of 2022. The increase in TV licensing revenue was primarily attributable to timing of availabilities across theatrical and television product, partially offset by lower TV production revenue.

Other revenue increased 56% and 62% for the three and six months ended June 30, 2022, respectively. The increase for the three and six months ended June 30, 2022 was primarily attributable to increased studio operations revenues from the reopening of Warner Bros. Studio Tour London.

Costs of Revenues

Costs of revenues increased 6% and 3% for the three and six months ended June 30, 2022, respectively. The increase for the three and six months ended June 30, 2022 was primarily attributable to higher games and theatrical content expense, partially offset by lower content expense for television products.

Selling, General and Administrative

Selling, general and administrative expenses decreased 2% for the three and six months ended June 30, 2022, respectively. The decrease for the three and six months ended June 30, 2022 was primarily attributable to lower marketing expenses due to fewer theatrical releases, partially offset by higher bad debt expense.

Adjusted EBITDA

Adjusted EBITDA was flat and increased 46% for the three and six months ended June 30, 2022, respectively.

~~U.S.~~

Networks Segment

The table below presents, for our ~~U.S.~~ Networks segment, revenues by type, certain operating expenses, Adjusted ~~OIBDA~~EBITDA and a reconciliation of Adjusted ~~OIBDA~~EBITDA to operating income (in millions).


															Three Months Ended June 30,
		Three Months Ended June 30,						Six Months Ended June 30,							2022						2021						% Change
		2021		2020		% Change		2021		2020		% Change			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:	Revenues:													Revenues:
Advertising	Advertising	$	1,119	$	997	12	%	$	2,099	$	2,023	4	%	Advertising	$	2,624	$	178	$	2,802	$	1,601	$	1,195	$	2,796	64	%	—	%	2	%
Distribution	Distribution	828		739		12	%	1,624		1,447		12	%	Distribution	2,841		171		3,012		1,132		1,955		3,087		NM		(2)	%	(1)	%
Content														Content	220		21		241		96		123		219		NM		10	%	11	%
Other	Other	26		20		30	%	56		42		33	%	Other	57		9		66		15		47		62		NM		6	%	6	%
Total revenues	Total revenues	1,973		1,756		12	%	3,779		3,512		8	%	Total revenues	5,742		379		6,121		2,844		3,320		6,164		NM		(1)	%	1	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	452		442		2	%	880		889		(1)	%	Costs of revenues, excluding depreciation and amortization	2,767		253		3,020		874		1,848		2,722		NM		11	%	14	%
Selling, general and administrative	Selling, general and administrative	471		252		87	%	1,026		545		88	%	Selling, general and administrative	713		31		744		432		328		760		65	%	(2)	%	—	%
Adjusted OIBDA		1,050		1,062		(1)	%	1,873		2,078		(10)	%
Adjusted EBITDA														Adjusted EBITDA	2,262		95		2,357		1,538		1,144		2,682		47	%	(12)	%	(11)	%
Depreciation and amortization														Depreciation and amortization	1,482		(283)		1,199		262		1,061		1,323
Employee share-based compensation	Employee share-based compensation	(1)		—				(1)		—				Employee share-based compensation	—		—		—		—		8		8
Depreciation and amortization		225		225				449		451
Restructuring and other charges	Restructuring and other charges	1		—				1		12				Restructuring and other charges	308		(5)		303		7		—		7
Transaction and integration costs														Transaction and integration costs	1		—		1		—		—		—
Amortization of fair value step-up for content														Amortization of fair value step-up for content	1		293		294		—		280		280
Inter-segment eliminations														Inter-segment eliminations	(2)		—		(2)		—		—		—
Loss on disposition														Loss on disposition	—		—		—		(72)		—		(72)
Operating income														Operating income	$	472	$	90	$	562	$	1,341	$	(205)	$	1,136

Inter-segment eliminations		(2)		1				(2)		2
Gain on disposition		(77)		—				(77)		—
Operating income		$	904	$	836			$	1,503	$	1,613
(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.														(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.


	Six Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Advertising	$	4,054	$	1,380	$	5,434	$	2,993	$	2,449	$	5,442	35	%	—	%	2	%
Distribution	3,961		2,183		6,144		2,281		3,968		6,249		74	%	(2)	%	—	%
Content	536		220		756		202		324		526		NM		44	%	46	%
Other	64		55		119		28		80		108		NM		10	%	10	%
Total revenues	8,615		3,838		12,453		5,504		6,821		12,325		57	%	1	%	3	%
Costs of revenues, excluding depreciation and amortization	3,822		2,102		5,924		1,691		3,547		5,238		NM		13	%	15	%
Selling, general and administrative	1,176		352		1,528		866		664		1,530		36	%	—	%	2	%
Adjusted EBITDA	3,617		1,384		5,001		2,947		2,610		5,557		23	%	(10)	%	(10)	%
Depreciation and amortization	1,887		594		2,481		534		2,173		2,707
Employee share-based compensation	—		9		9		—		17		17
Restructuring and other charges	312		(5)		307		21		5		26
Transaction and integration costs	—		—		—		4		—		4
Amortization of fair value step-up for content	1		419		420		—		401		401
Inter-segment eliminations	(2)		—		(2)		—		—		—
Loss on disposition	—		—		—		(72)		—		(72)
Operating income	$	1,419	$	367	$	1,786	$	2,460	$	14	$	2,474

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

Revenues

Advertising revenue increased ~~12% and 4%~~ 2%for the three and six months ended June 30, ~~2021, respectively. The increases were~~2022, primarily attributable to ~~higher pricing,~~increased sports advertising in the ~~continued monetization of content offerings on our next generation initiatives, primarily discovery+ and TV Everywhere, and higher inventory,~~U.S., partially offset by lower ~~overall ratings,~~news, kids, and ~~to a lesser extent, secular declines~~general entertainment in the ~~pay-TV ecosystem.~~U.S. International networks were, in part, impacted by the sale of Chilevisión in September 2021.

Distribution revenue ~~increased 12%~~decreased 1% and was flat for the three and six months ended June 30, ~~2021. The increases were~~2022, respectively, primarily attributable to ~~discovery+ and an increase in contractual affiliate rates, partially offset by~~ a decline in linear subscribers in the U.S. and ~~certain prior year non-recurring items. Excluding these prior year non-recurring items, distribution~~lower contractual affiliate rates in some European markets, partially offset by an increase in U.S. contractual affiliate rates.

Content revenue increased ~~18%~~11% and 46%for the three and six months ended June 30, 2022, respectively. The increase for the three months ended June 30, 2022 was primarily attributable to higher inter-segment licensing of digital content. The increase for the six months ended June 30, 2022 was primarily attributable to higher third party international licensing of sports rights, mainly related to Olympic sports rights to broadcast networks throughout Europe.

Other revenue increased 6% and 10% for the three and six months ended June 30, 2022, respectively.

Costs of Revenues

Cost of revenues increased 14% and 15% for the three and six months ended June 30, ~~2021,~~2022, respectively. Total subscribers to our linear networks at June 30, 2021 were 7% lower than at June 30, 2020, while subscribers to our fully distributed linear networks were 3% lower than the prior year. Excluding the impact of the sale of our Great American Country linear network, total subscribers to our linear networks at June 30, 2021 were 3% lower than at June 30, 2020.

~~Other revenues increased $6 million and $14 million~~The increase for the three and six months ended June 30, ~~2021, respectively.~~

~~Costs of Revenues~~

~~Costs of revenues increased 2% for the three months ended June 30, 2021 and decreased 1% for the six months ended June 30, 2021. The increase for the three months ended June 30, 2021~~2022 was primarily attributable to ~~our growing~~higher sports rights and content investment in discovery+ and a non-recurring, non-cash item in the second quarter of 2020, partially offset by more efficient content spend on our linear networks. The decrease for the six months ended June 30, 2021 was primarily attributable to more efficient content spend on our linear networks, partially offset by our growing content investment in discovery+ and a non-recurring, non-cash item in the second quarter of 2020.expense.

Content expense was $375 million and $431 million for the three months ended June 30, 2021 and 2020, respectively, and $739 million and $818 million for the six months ended June 30, 2021 and 2020, respectively.

Selling, General and Administrative

Selling, general and administrative expenses ~~increased 87% and 88%~~were flat for the three months ended June 30, 2022, as higher marketing expenses were offset by cost synergies, and increased 2% for the six months ended June 30, ~~2021, respectively. The increase was~~2022, primarily attributable to higher ~~marketing-related expenses to support the launch and growth of discovery+.~~marketing offset by cost synergies.

Adjusted ~~OIBDA~~EBITDA

Adjusted ~~OIBDA~~EBITDA decreased 1%11% and 10% for the three and six months ended June 30, ~~2021,~~2022, respectively.

~~International Networks~~ DTC Segment

The following tables present, for our ~~International Networks~~DTC segment, revenues by type, certain operating expenses, Adjusted ~~OIBDA~~EBITDA and a reconciliation of Adjusted ~~OIBDA~~EBITDA to operating income (in millions).

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 % Change % Change (ex-FX) 2021 2020 % Change % Change (ex-FX)
Revenues:
Advertising $ 518 $ 276 88 % 70 % $ 953 $ 652 46 % 35 %
Distribution 540 486 11 % 6 % 1,054 1,001 5 % 2 %
Other 35 21 67 % 64 % 73 53 38 % 34 %
Total revenues 1,093 783 40 % 31 % 2,080 1,706 22 % 16 %
Costs of revenues, excluding depreciation and amortization 603 365 65 % 51 % 1,146 835 37 % 27 %
Selling, general and administrative 275 225 22 % 14 % 568 471 21 % 13 %
Adjusted OIBDA 215 193 11 % 11 % 366 400 (9) % (5) %
Depreciation and amortization 87 84 191 166
Impairment of goodwill and other intangible assets — 38 — 38
Restructuring and other charges 5 3 20 4
Transaction and integration costs — — 4 —
Inter-segment eliminations 2 — 2 —
Loss on disposition 5 — 5 —
Operating income $ 116 $ 68 $ 144 $ 192


	Three Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Advertising	$	96	$	1	$	97	$	33	$	4	$	37	NM		NM		NM
Distribution	1,993		171		2,164		180		1,996		2,176		NM		(1)	%	1	%
Content	132		11		143		2		134		136		NM		5	%	5	%
Other	4		2		6		1		2		3		NM		NM		NM
Total revenues	2,225		185		2,410		216		2,136		2,352		NM		2	%	4	%
Costs of revenues, excluding depreciation and amortization	1,902		165		2,067		183		1,396		1,579		NM		31	%	33	%
Selling, general and administrative	841		62		903		362		646		1,008		NM		(10)	%	(10)	%
Adjusted EBITDA	(518)		(42)		(560)		(329)		94		(235)		(57)	%	NM		NM
Depreciation and amortization	554		(107)		447		54		445		499
Employee share-based compensation	—		(1)		(1)		—		3		3

Restructuring and other charges	475		(3)		472		—		1		1

Amortization of fair value step-up for content	65		(23)		42		—		48		48
Inter-segment eliminations	10		—		10		—		—		—
Loss on disposition	4		—		4		—		—		—
Operating loss	$	(1,626)	$	92	$	(1,534)	$	(383)	$	(403)	$	(786)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.


	Six Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Advertising	$	142	$	36	$	178	$	50	$	6	$	56	NM		NM		NM
Distribution	2,225		2,150		4,375		289		3,806		4,095		NM		7	%	8	%
Content	134		230		364		3		245		248		NM		47	%	47	%
Other	5		3		8		1		8		9		NM		(11)	%	(11)	%
Total revenues	2,506		2,419		4,925		343		4,065		4,408		NM		12	%	13	%
Costs of revenues, excluding depreciation and amortization	2,082		1,881		3,963		335		2,667		3,002		NM		32	%	34	%
Selling, general and administrative	1,169		909		2,078		827		1,258		2,085		41	%	—	%	—	%
Adjusted EBITDA	(745)		(371)		(1,116)		(819)		140		(679)		9	%	(64)	%	(67)	%
Depreciation and amortization	650		267		917		121		910		1,031
Employee share-based compensation	—		—		—		—		8		8

Restructuring and other charges	475		(3)		472		1		4		5
Transaction and integration costs	1		—		1		—		—		—
Amortization of fair value step-up for content	65		20		85		—		98		98
Inter-segment eliminations	10		—		10		—		—		—
Loss on disposition	4		—		4		—		—		—
Operating loss	$	(1,950)	$	(655)	$	(2,605)	$	(941)	$	(880)	$	(1,821)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

Revenues

As of June 30, 2022, we had 92 million core DTC subscribers.1

Advertising revenue increased ~~88%~~$61 million and ~~46%~~ $123 millionfor the three and six months ended June 30, 2022, respectively, primarily attributable to the launch of the HBO Max ad-supported tier in June 2021 ~~respectively. Excluding~~and subscriber growth on the ~~impact of foreign currency fluctuations, advertising~~discovery+ ad-lite tier.

Distribution revenue increased ~~70%~~1% and ~~35%~~8% for the three and six months ended June 30, ~~2021, respectively. Excluding the impact of foreign currency fluctuations, the increases were~~2022, respectively, primarily attributable to ~~improved overall performance in all regions as advertising markets continued to recover~~global retail subscriber gains at discovery+ and HBO Max that were largely offset by lower domestic wholesale subscribers resulting from the ~~impact of COVID-19.~~Amazon Channels expiration in September 2021 for HBO Max.

~~Distribution~~Content revenue increased ~~11%~~5% and 5%47% for the three and six months ended June 30, ~~2021, respectively. Excluding~~2022, respectively, primarily attributable to higher licensing of HBO Max content to third parties.

1 We define a “Core DTC Subscription” as:

a) a retail subscription to discovery+, HBO or HBO Max for which we have recognized subscription revenue, whether directly or through a third party, from a direct-to-consumer platform; b) a wholesale subscription to discovery+, HBO, or HBO Max for which we have recognized subscription revenue from a fixed-fee arrangement with a third party and where the ~~impact~~individual user has activated their subscription; and c) a wholesale subscription to discovery+, HBO or HBO Max for which we have recognized subscription revenue on a per subscriber basis.

We may refer to the aggregate number of ~~foreign currency fluctuations, distribution revenue~~Core DTC Subscriptions as “subscribers.”

The reported number of “subscribers” included herein and the definition of “Core DTC Subscription” as used herein excludes:

a) individuals who subscribe to DTC products, other than discovery+, HBO and HBO Max, that may be offered by us or by certain joint venture partners or affiliated parties from time to time; b) a limited number of international discovery+ subscribers that are part of non-strategic partnerships or short-term arrangements as may be identified by the Company from time to time (such subscribers may also be referred to as “non-core” subscribers); c) domestic, and international Cinemax subscribers, and international basic HBO subscribers; and d) users on free trials.

Costs of Revenues

Costs of revenues increased 6%33% and 2%34% for the three and six months ended June 30, ~~2021, respectively. Excluding the impact of foreign currency fluctuations, the increases were~~2022, respectively, primarily attributable to ~~an increase~~increased investments in ~~next generation revenues due~~programming expenses to ~~subscriber growth~~support existing platforms and new market launches.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses decreased 10% for the three months ended June 30, 2022 and was flat for the six months ended June 30, 2022. The decrease for the three months ended June 30, 2022 was primarily attributable to more efficient and measured marketing-related spend to support discovery+~~, partially offset by lower contractual affiliate rates in some European markets.~~ and HBO Max.

~~Other revenue increased $14~~Adjusted EBITDA

Adjusted EBITDA decreased $338 million and ~~$20~~$451 million for the three and six months ended June 30, ~~2021, respectively. Excluding the impact of foreign currency fluctuations, other revenue increased $14 million and $19 million for the three and six months ended June 30, 2021,~~2022, respectively.

~~Costs of Revenues~~

Costs of revenues increased 65% and 37% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, costs of revenues increased 51% and 27% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to European sporting events and leagues returning to a more normalized schedule and higher content investment related to discovery+.

Content expense, excluding the impact of foreign currency fluctuations, was $396 million and $241 million for the three months ended June 30, 2021 and 2020, respectively, and $777 million and $581 million for the six months ended June 30, 2021 and 2020, respectively.

~~Selling, General and Administrative~~

Selling, general and administrative expenses increased 22% and 21% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, selling, general and administrative expenses increased 14% and 13% for the three and six months ended June 30, 2021. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to higher marketing-related expenses and personnel costs to support discovery+.

~~Adjusted OIBDA~~

Adjusted OIBDA increased 11% and decreased 9% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, Adjusted OIBDA increased 11% and decreased 5% for the three and six months ended June 30, 2021, respectively.

Corporate ~~Inter-segment Eliminations, and Other~~

The following table presents our unallocated corporate amounts including certain operating expenses, Adjusted ~~OIBDA~~EBITDA and a reconciliation of Adjusted ~~OIBDA~~EBITDA to operating loss (in millions).:


															Three Months Ended June 30,
		Three Months Ended June 30,						Six Months Ended June 30,							2022						2021						% Change
		2021		2020		% Change		2021		2020		% Change			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues	Revenues	$	(4)	$	2	NM		$	(5)	$	6	NM		Revenues	$	13	$	3	$	16	$	—	$	10	$	10	NM	60	%	60	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	—		3		NM		(2)		4		NM		Costs of revenues, excluding depreciation and amortization	11		6		17		(2)		99		97		NM	(82)	%	(82)	%
Selling, general and administrative	Selling, general and administrative	144		127		13	%	282		240		18	%	Selling, general and administrative	307		97		404		96		158		254		NM	59	%	62	%
Adjusted OIBDA		(148)		(128)		(16)	%	(285)		(238)		(20)	%
Adjusted EBITDA														Adjusted EBITDA	(305)		(100)		(405)		(94)		(247)		(341)		NM	(19)	%	(21)	%
Employee share-based compensation	Employee share-based compensation	28		31				89		24				Employee share-based compensation	147		(32)		115		27		63		90
Depreciation and amortization	Depreciation and amortization	29		25				62		43				Depreciation and amortization	72		(14)		58		25		47		72
Restructuring and other charges	Restructuring and other charges	1		4				1		6				Restructuring and other charges	68		(43)		25		—		(1)		(1)
Transaction and integration costs	Transaction and integration costs	35		—				35		—				Transaction and integration costs	982		(782)		200		35		1		36

Inter-segment eliminations	Inter-segment eliminations	—		(1)				—		(2)				Inter-segment eliminations	(8)		—		(8)		—		—		—
Operating loss	Operating loss	$	(241)	$	(187)			$	(472)	$	(309)			Operating loss	$	(1,566)	$	771	$	(795)	$	(181)	$	(357)	$	(538)


	Six Months Ended June 30,
	2022						2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues	$	13	$	19	$	32	$	—	$	16	$	16	NM	NM		NM
Costs of revenues, excluding depreciation and amortization	11		50		61		(4)		181		177		NM	(66)	%	(66)	%
Selling, general and administrative	411		322		733		182		276		458		NM	60	%	63	%
Adjusted EBITDA	(409)		(353)		(762)		(178)		(441)		(619)		NM	(23)	%	(25)	%
Employee share-based compensation	204		(11)		193		88		138		226
Depreciation and amortization	96		11		107		47		94		141
Restructuring and other charges	69		(44)		25		—		44		44
Transaction and integration costs	1,069		(564)		505		35		790		825

Inter-segment eliminations	(8)		—		(8)		—		—		—
Operating loss	$	(1,839)	$	255	$	(1,584)	$	(348)	$	(1,507)	$	(1,855)

Corporate operations primarily consist of executive management, administrative support services, substantially all of our share-based compensation, and third-party transaction and integration costs.

As reported transaction and integration costs for the three and six months ended June 30, 2022 included the impact of the issuance of additional shares of common stock to Advance/Newhouse Programming Partnership of $789 million upon the closing of the Merger. (See Note 2 to the accompanying consolidated financial statements.)

Inter-segment Eliminations

The following tables presents our inter-segment eliminations, by revenue and expense (in millions):


	Three Months Ended June 30,
	2022							2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)

Inter-segment revenue eliminations	$	(949)	$	(139)	$	(1,088)		$	—	$	(648)	$	(648)	NM	(68)	%	(68)	%
Inter-segment expense eliminations	(935)		(116)		(1,051)			—		(679)		(679)		NM	(55)	%	(55)	%
Adjusted EBITDA	(14)		(23)		(37)		—	—		31		31		NM	NM		NM
Restructuring and other charges	(18)		—		(18)			—		—		—
Amortization of fair value step-up for content	241		—		241			—		—		—
Operating income (loss)	$	(237)	$	(23)	$	(260)		$	—	$	31	$	31


	Six Months Ended June 30,
	2022							2021						% Change
	Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)

Inter-segment revenue eliminations	$	(949)	$	(1,065)	$	(2,014)		$	—	$	(1,323)	$	(1,323)	NM	(52)	%	(52)	%
Inter-segment expense eliminations	(935)		(1,038)		(1,973)			—		(1,361)		(1,361)		NM	(45)	%	(45)	%
Adjusted EBITDA	(14)		(27)		(41)		—	—		38		38		NM	NM		NM
Restructuring and other charges	(18)		—		(18)			—		—		—
Amortization of fair value step-up for content	241		—		241			—		—		—
Operating income (loss)	$	(237)	$	(27)	$	(264)		$	—	$	38	$	38

Inter-segment revenue and expense eliminations primarily represent inter-segment content transactions and marketing and promotion activity between reportable segments. In our current segment structure, in certain instances, production and distribution activities are in different segments. Inter-segment content transactions are presented “gross” (i.e. the segment producing and/or licensing the content reports revenue and profit from inter-segment transactions in a manner similar to the reporting of third-party transactions, and the required eliminations are reported on the separate “Eliminations” line when presenting our summary of segment results). Generally, timing of revenue recognition is similar to the reporting of third-party transactions. The segment distributing the content, e.g. via our DTC or linear services, capitalizes the cost of inter-segment content transactions, including “mark-ups” and amortizes the costs over the shorter of the license term, if applicable, or the expected period of use. The content amortization expense related to the inter-segment profit is also eliminated on the separate “Eliminations” line when presenting our summary of segment results.

FINANCIAL CONDITION

Liquidity

Sources of Cash

Historically, we have generated a significant amount of cash from operations. During the six months ended June 30, ~~2021,~~2022, we funded our working capital needs primarily through cash flows from operations. As of June 30, ~~2021,~~2022, we had ~~$2.8~~$2.6 billion of cash and cash equivalents on hand. We are a well-known seasoned issuer and have the ability to conduct registered offerings of securities, including debt securities, common stock, and preferred stock, on short notice, subject to market conditions. Access to sufficient capital from the public market is not assured. WeAs of June 30, 2022, we also have a ~~$2.5~~$6.0 billion revolving credit facility and a $1.5 billion commercial paper program, as described below.In connection with the Merger, we incurred a substantial amount of additional third-party indebtedness, which has significantly increased our future financial commitments, including aggregate interest payments.

•Debt

Revolving Credit Facility and Commercial Paper

In June 2021, weDiscovery Communications, LLC (“DCL”) entered into a multicurrency revolving credit agreement (the ~~"Credit Agreement"~~“Revolving Credit Agreement”), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. ~~We have~~DCL has the capacity to ~~initially~~ borrow up to ~~$2.5~~$6.0 billion under the Revolving Credit ~~Agreement. Upon the closing of the proposed combination transactions with WarnerMedia, the available commitments may be increased by $3.5 billion, to an aggregate amount not to exceed $6 billion.~~Agreement (the “Credit Facility”). The Revolving Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. WeDCL may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions. Obligations under the Revolving Credit Agreement are unsecured and are fully and unconditionally guaranteed by ~~Discovery, Inc. and~~the Company, Scripps Networks Interactive, Inc. (“Scripps Networks”), and ~~will also be guaranteed by the holding company of the~~ WarnerMedia ~~business upon the closing of the proposed combination transactions.~~

Holdings, Inc. The Credit ~~Agreement~~Facility will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal ~~periods.~~periods subject to the lenders' consent. The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of June 30, ~~2021,~~2022, DCL was in compliance with all covenants and there were no events of default under the Revolving Credit ~~Facility.~~Agreement.

Additionally, ~~the Company's~~our commercial paper program is supported by the Credit Facility. Under the commercial paper program, ~~the Company~~we may issue up to $1.5 billion, including up to $500 million of euro-denominated borrowings. Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program.

During the six months ended June 30, 2022, we borrowed and repaid $90 million under our commercial paper program. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had no outstanding borrowings under the Credit Facility or the commercial paper program.

•~~Investments~~Derivatives

We received investing proceeds of ~~$348~~$720 million during the six months ended June 30, ~~2021~~2022 from the ~~sales~~unwind and ~~maturities~~settlement of ~~investments.~~derivative instruments. (See Note 12 to the accompanying consolidated financial statements.)

•Investments and Business Combinations

During the six months ended June 30, 2022, we completed the sale of our minority interest in Discovery Education and received cash of $138 million.

In addition, we acquired $2.4 billion of cash in conjunction with the Merger.

Uses of Cash

Our primary uses of cash include the creation and acquisition of new content, business acquisitions, ~~repurchases of our capital stock,~~ income taxes, personnel costs, costs to develop and market HBO Max and discovery+, principal and interest payments on our outstanding senior notes, ~~and~~ funding for various equity method and other ~~investments.~~investments, and repurchases of our capital stock.

•Content Acquisition

We plan to continue to invest significantly in the creation and acquisition of new content. ~~Our investment in content has increased as we acquire and develop new content for discovery+. Contractual~~Subsequent to the Merger, contractual commitments to acquire content have increased ~~less than 10%~~significantly compared to our commitments as set forth in ~~"Commitments~~“Material Cash Requirements from Known Contractual and ~~Off-Balance Sheet Arrangements"~~Other Obligations” in Item 7, ~~"Management's~~“Management's Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” in our ~~2020~~2021 Form 10-K. (See Note 19 to the accompanying consolidated financial statements.)

4359

•Debt

Term Loan

During the six months ended June 30, 2022, the Company repaid$3.5 billion of aggregate principal amount outstanding of its term loans due October 2023 and April 2025.

Senior Notes

~~In July 2021,~~During the six months ended June 30, 2022, we ~~issued notices for the redemption~~repaid in full ~~of all $168~~at maturity $327 million aggregate principal amount outstanding of our ~~3.300%~~2.375% Euro Denominated Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of our 3.500% Senior Notes due June 2022 (the "2022 Notes"). The 2022 Notes were redeemed on July 31, 2021 for an aggregate redemption price of $235 million, plus accrued interest. The redemption included $5 million for premium over par on the 2022 Notes and resulted in a loss on extinguishment of debt of $6 million.

In February 2021, we issued a notice for the redemption in full of all $335 million aggregate principal amount outstanding of our 4.375% Senior Notes due June 2021 (the “2021 Notes”). The 2021 Notes were redeemed in March ~~2021 for an aggregate redemption price of $339 million, plus accrued interest. The redemption included $3 million for premium over par and resulted in a loss on extinguishment of debt of $3 million.~~

2022. In addition, we have ~~$357~~$106 million, $796 million, and $192 million of senior notes coming due in February, March, ~~2022.~~and April 2023, respectively.

In anticipation of the Merger, WarnerMedia Holdings, Inc., formerly a wholly owned subsidiary of AT&T, entered into a $10 billion term loan credit agreement (the “Term Loan Credit Agreement”) and issued $30 billion aggregate principal amount of senior unsecured notes. The proceeds were used to fund the cash payments to AT&T and to otherwise fund the Merger and pay fees and expenses. Upon completion of the Merger, AT&T was released from all obligations and the debt was unconditionally guaranteed on a senior unsecured basis by WBD and each wholly owned domestic subsidiary of WBD that is a borrower or considered a subsidiary guarantor under the Term Loan Credit Agreement or the Revolving Credit Agreement, and will rank equally with all of the Company's other unsecured senior debt.

On a consolidated basis, we also assumed an additional $1.5 billion of senior notes (at par value) issued by the WarnerMedia Business that existed prior to the Merger.

•Capital Expenditures and Investments in Next Generation Initiatives

We effected capital expenditures of ~~$167~~$307 million during the six months ended June 30, ~~2021,~~2022, including amounts capitalized to support our next generation platforms, such as HBO Max and discovery+. In addition, we expect to continue to incur significant costs to develop and market HBO Max and discovery+ streaming products in the future.

•Investments and Business Combinations

Our uses of cash have included investments in equity method investments and equity investments without readily determinable fair value. (See Note 39 to the accompanying consolidated financial statements.) We also provide funding to our investees from time to time. During the six months ended June 30, ~~2021,~~2022, we contributed ~~$105~~$109 million for investments in and advances to our investees.

We expect to incur significant, one-time transaction and integration costs during the first year following the Merger. (See Note 3 to the accompanying consolidated financial statements.)

•Redeemable Noncontrolling Interest and Noncontrolling Interest

Due to business combinations, we ~~also~~ have redeemable equity balances of ~~$357~~$328 million at June 30, 2022, which may require the use of cash in the event holders of noncontrolling interests put their interests to ~~us, which may be exercised in 2021.~~us. Distributions to noncontrolling interests and redeemable noncontrolling interests totaled ~~$213~~$264 million and ~~$202~~$213 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

•Common Stock Repurchases

Historically, we have funded our stock repurchases through a combination of cash on hand, cash generated by operations, and the issuance of debt. In February 2020, our Board of Directors authorized additional stock repurchases of up to $2 billion upon completion of our existing $1 billion repurchase authorization announced in May 2019. Under the new stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors. ~~(See Note 9 to the accompanying consolidated financial statements.)~~ During the six months ended June 30, ~~2021,~~2022, we did not repurchase any of our common stock.

•Income Taxes and Interest

We expect to continue to make payments for income taxes and interest on our outstanding senior notes. During the six months ended June 30, ~~2021,~~2022, we made cash payments of ~~$249~~$442 million and ~~$337~~$390 million for income taxes and interest on our outstanding debt, respectively. We expect cash required for interest payments to increase significantly as a result of the Merger.

4460

Cash Flows

The following table presents changes in cash and cash equivalents (in millions).


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	$	2,122	$	1,552	Cash, cash equivalents, and restricted cash, beginning of period	$	3,905	$	2,122
Cash provided by operating activities	Cash provided by operating activities	1,103		1,326		Cash provided by operating activities	1,334		1,103
Cash provided by (used in) investing activities		196		(154)
Cash provided by investing activities						Cash provided by investing activities	2,880		196
Cash used in financing activities	Cash used in financing activities	(538)		(998)		Cash used in financing activities	(4,157)		(538)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(49)		12		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(66)		(49)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	712		186		Net change in cash, cash equivalents, and restricted cash	(9)		712
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	2,834	$	1,738	Cash, cash equivalents, and restricted cash, end of period	$	3,896	$	2,834

Operating Activities

Cash provided by operating activities was ~~$1.1 billion~~$1,334 million and ~~$1.3 billion~~$1,103 million during the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~decrease~~increase in cash provided by operating activities was primarily attributable to ~~a negative fluctuation in working capital activity, partially offset by~~ an increase in net income excluding non-cash ~~items.~~items, partially offset by a negative fluctuation in working capital activity.

Investing Activities

Cash provided by ~~(used in)~~ investing activities was ~~$196~~$2,880 million and ~~$(154)~~$196 million during the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in cash provided by investing activities was primarily attributable to proceeds received from cash acquired during the Merger and from the unwind and settlement of derivative instruments, partially offset by a reduction in cash received from the sales and maturities of investments ~~and a reduction in purchases of property and equipment~~ during the six months ended June 30, ~~2021.~~2022.

Financing Activities

Cash used in financing activities was ~~$538~~$4,157 million and ~~$998~~$538 million during the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~decrease~~increase in cash used in financing activities was primarily attributable to ~~a reduction~~principal repayments made on our term loans and senior notes and an increase in ~~repurchases of stock~~distributions to noncontrolling interests and redeemable noncontrolling interests during the six months ended June 30, ~~2021.~~2022.

Capital Resources

As of June 30, ~~2021,~~2022, capital resources were comprised of the following (in millions).


		June 30, 2021									June 30, 2022
		Total Capacity		Outstanding Letters of Credit		Outstanding Indebtedness		Unused Capacity			Total Capacity		Outstanding Indebtedness		Unused Capacity
Cash and cash equivalents	Cash and cash equivalents	$	2,834	$	—	$	—	$	2,834	Cash and cash equivalents	$	2,575	$	—	$	2,575
Revolving credit facility and commercial paper program	Revolving credit facility and commercial paper program	2,500		—		—		2,500		Revolving credit facility and commercial paper program	6,000		—		6,000
Term loans										Term loans	6,500		6,500		—
Senior notes (a)	Senior notes (a)	15,484		—		15,484		—		Senior notes (a)	46,259		46,259		—
Total	Total	$	20,818	$	—	$	15,484	$	5,334	Total	$	61,334	$	52,759	$	8,575

(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of June 30, 2021 had interest rates that ranged from 1.90% to 6.35% and will mature between 2022 and 2055.
(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of June 30, 2022 had interest rates that ranged from 1.82% to 9.15% and will mature between 2023 and 2062.										(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of June 30, 2022 had interest rates that ranged from 1.82% to 9.15% and will mature between 2023 and 2062.

In anticipation of the Merger, WarnerMedia Holdings, Inc., formerly a wholly owned subsidiary of AT&T, entered into the Term Loan Credit Agreement and issued $30 billion aggregate principal amount of senior unsecured notes. The proceeds were used to fund the cash payments to AT&T and to otherwise fund the Merger and pay fees and expenses. Upon completion of the Merger, AT&T was released from all obligations and the debt was unconditionally guaranteed on a senior unsecured basis by WBD and each wholly owned domestic subsidiary of WBD that is a borrower or considered a subsidiary guarantor under the Term Loan Credit Agreement or the Credit Agreement, and will rank equally with all of the Company's other unsecured senior debt.

On a consolidated basis, we also assumed an additional $1.5 billion of senior notes (at par value) issued by the WarnerMedia Business that existed prior to the Merger.

We expect that our cash balance, cash generated from operations and availability under the Credit ~~Agreement~~Facility will be sufficient to fund our cash needs for both the ~~next twelve months.~~short-term and the long-term. Our borrowing costs and access to capital markets can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.

As of June 30, ~~2021,~~2022, we held ~~$434 million~~$1.2 billion of our ~~$2.8~~$2.6 billion of cash and cash equivalents in our foreign subsidiaries. The ~~2017~~ Tax Cuts and Jobs Act of 2017 features a participation exemption regime with current taxation of certain foreign income and imposes a mandatory repatriation toll tax on unremitted foreign earnings. Notwithstanding the U.S. taxation of these amounts, we intend to continue to reinvest these funds outside of the U.S. Our current plans do not demonstrate a need to repatriate them to the U.S. However, if these funds are needed in the U.S., we would be required to accrue and pay non-U.S. taxes to repatriate them. The determination of the amount of unrecognized deferred income tax liability with respect to these undistributed foreign earnings is not practicable.

Summarized Guarantor Financial Information

Basis of Presentation

Each of the Company, DCL, Discovery Communications Holding LLC (“DCH”), and/or Scripps Networks has the ability to conduct registered offerings of debt securities under the Company’s shelf registration statement. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, all of the Company’s outstanding $14.7 billion registered senior notes have been issued by DCL, a wholly owned subsidiary of the Company, and guaranteed by the Company, ~~and~~ Scripps Networks, ~~except for $32 million~~and WarnerMedia Holdings, Inc. As of June 30, 2022, the Company also has outstanding $30.0 billion of senior notes ~~outstanding as~~issued by WarnerMedia Holdings, Inc. and guaranteed by the Company, Scripps and DCL; $1.5 billion of ~~June 30, 2021 that have been~~senior notes issued by the legacy WarnerMedia Business (not guaranteed); and approximately $23 million of un-exchanged senior notes issued by Scripps Networks ~~and are not guaranteed.~~(not guaranteed). (See Note 7.10 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S. DCL is a wholly owned subsidiary of ~~DCH. The Company wholly owns DCH through a 33 1/3% direct ownership interest and a 66 2/3% indirect ownership interest through Discovery Holding Company (“DHC”), a wholly owned subsidiary of~~ the Company. Scripps Networks is also 100% owned by the Company.

The tables below present the summarized financial information as combined for Warner Bros. Discovery, Inc. (the “Parent”), Scripps Networks, DCL, and ~~DCL~~WarnerMedia Holdings, Inc. (collectively, the “Obligors”). All guarantees of ~~DCL's~~DCL and WarnerMedia Holdings, Inc.'s senior notes (the “Note Guarantees”) are full and unconditional, joint and several and unsecured, and cover all payment obligations arising under the senior notes. ~~DCH currently is not an issuer or guarantor of any securities and therefore is not included in the summarized financial information included herein.~~

Note Guarantees issued by Scripps Networks, DCL or WarnerMedia Holdings, Inc., or any subsidiary of the Parent that in the future issues a Note Guarantee (each, a “Subsidiary Guarantor”) may be released and discharged (i) concurrently with any direct or indirect sale or disposition of such Subsidiary Guarantor or any interest therein, (ii) at any time that such Subsidiary Guarantor is released from all of its obligations under its guarantee of payment, ~~by DCL,~~ (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into DCL, WarnerMedia Holdings, Inc. or the Parent or another Subsidiary Guarantor, as applicable, or upon the liquidation of such Subsidiary Guarantor and (iv) other customary events constituting a discharge of the Obligors’ obligations.

Summarized Financial Information

The Company has included the accompanying summarized combined financial information of the Obligors after the elimination of intercompany transactions and balances among the Obligors and the elimination of equity in earnings from and investments in any subsidiary of the Parent that is a non-guarantor (in millions). The summarized balance sheet information as of December 31, 2021 does not include information with respect to WarnerMedia Holdings, Inc., as WarnerMedia Holdings, Inc. was a wholly-owned subsidiary of AT&T with
June 30, 2021 December 31, 2020
Current assets $ 3,390 $ 2,308
Non-guarantor intercompany trade receivables, net $ 185 $ 217
Noncurrent assets $ 5,997 $ 5,905
Current liabilities $ 1,131 $ 915
Noncurrent liabilities $ 15,863 $ 16,500
de minimis assets and no operating activities for the year ended December 31, 2021. The summarized income statement information for the six months ended June 30, 2022 includes information with respect to WarnerMedia Holdings, Inc. beginning subsequent to the close of the Merger.


	June 30, 2022		December 31, 2021
Current assets	$	1,809	$	4,452
Non-guarantor intercompany trade receivables, net	109		85
Noncurrent assets	5,853		5,969
Current liabilities	1,938		1,018
Noncurrent liabilities	51,318		15,778

Six ~~months ended~~Months Ended June 30, ~~2021~~2022

Revenues

~~1,054~~1,099

Operating income

~~578~~ (770)

Net income

~~286~~ (882)

Net income available to Warner Bros. Discovery, Inc.

~~275~~ (886)

~~COMMITMENTS~~MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND ~~OFF-BALANCE SHEET ARRANGEMENTS~~OTHER OBLIGATIONS

In the normal course of business, we enter into commitments for the purchase of goods or services that require us to make payments or provide funding in the event certain circumstances occur. ~~The nature of our~~Subsequent to the Merger, total contractual commitments, ~~is evolving with the launch~~particularly in respect of long-term debt and ~~our support of discovery+. Total contractual commitments~~content purchase obligations, have increased ~~less than 10% as~~significantly compared to our commitments set forth in ~~"Commitments~~“Material Cash Requirements from Known Contractual and ~~Off-Balance Sheet Arrangements"~~Other Obligations” in Item 7, ~~"Management's~~“Management's Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” in our ~~2020 Annual Report on~~2021 Form 10-K. (See Note 10 and Note 19 to the accompanying consolidated financial statements.)

RELATED PARTY TRANSACTIONS

In the ordinary course of business, we enter into transactions with related parties, primarily the Liberty Group and our equity method investees. (See Note 1518 to the accompanying consolidated financial statements.)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

~~Our~~Except for updates to accounting policies as a result of the Merger described in Note 1 to the accompanying consolidated financial statements, our critical accounting policies and estimates have not changed since December 31, ~~2020.~~2021. For a discussion of each of our critical accounting estimates listed below, including information and analysis of estimates and assumptions involved in their application, see ~~"Critical~~“Critical Accounting Policies and ~~Estimates"~~Estimates” included in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2020 Annual Report on~~2021 Form 10-K:

•Uncertain tax positions;

•Goodwill and intangible assets;

•Content rights;

•Consolidation; and

•Revenue recognition

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS

We adopted certain new accounting and reporting standards during the six months ended June 30, 2022. (See Note 1 to the accompanying consolidated financial statements.)

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, as well as in other public statements we may make, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired businesses, new service offerings, financial prospects, ~~and~~ anticipated sources and uses of capital and our ~~proposed transaction to combine our business with AT&T's~~recently completed acquisition of the WarnerMedia ~~business.~~Business. Words such as “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would,” among other terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be accomplished. The following is a list of some, but not all, of the factors that could cause actual results or events to differ materially from those anticipated:

•the ~~occurrence of any event, change or other circumstance that could give rise to the termination of, or prevent or delay our ability to consummate, our proposed transaction to combine with WarnerMedia;~~

•~~the~~ effects of our recently completed acquisition of the ~~announcement, pendency or completion of our proposed transaction to combine with~~ WarnerMedia ~~on our ongoing business operations;~~Business;

•changes in the distribution and viewing of television programming, including the continuing expanded deployment of personal video recorders, subscription video on demand, internet protocol television, mobile personal devices, ~~and~~ personal tablets and user-generated content and their impact on television advertising revenue;

•continued consolidation of distribution customers and production studios;

•a failure to secure affiliate or distribution agreements or the renewal of such agreements or other wholesale subscription or bundled service arrangements on less favorable terms;

•rapid technological changes;

•the inability of advertisers or affiliates to remit payment to us in a timely manner or at all;

•general economic and business conditions, including the impact of the ongoing COVID-19 pandemic;

•industry trends, including the timing of, and spending on, feature film, television and television commercial production;

•spending on domestic and foreign television advertising;

•disagreements with our distributors or other business partners over contract interpretation;

•fluctuations in foreign currency exchange rates, political unrest and regulatory changes in international markets, including any proposed or adopted regulatory changes that impact the operations of our international media properties and/or modify the terms under which we offer our services and operate in international markets;

•market demand for foreign first-run and existing content libraries;

•the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate;

•uncertainties ~~inherent in the development of new business lines and business strategies;~~

•~~uncertainties~~ regarding the financial performance of our investments in unconsolidated entities;

•our ability to complete, integrate, maintain and obtain the anticipated benefits and synergies from our proposed business combinations and acquisitions, including our ~~proposed transaction to combine with~~recently completed acquisition of the WarnerMedia Business, on a timely basis or at all;

•uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies, and the success of our ~~new~~ discovery+ and HBO Max streaming ~~product;~~products;

•realizing direct-to-consumer subscriber goals, including through the activation of subscriptions by subscribers receiving access through bundled services or other wholesale subscription arrangements;

•future financial performance, including availability, terms, and deployment of capital;

•inherent uncertainties involved in the estimates and assumptions used in the preparation of financial forecasts;

•the ability of suppliers and vendors to deliver products, equipment, software, and services;

•~~our ability to achieve the efficiencies, savings and other benefits anticipated from our cost-reduction initiatives;~~

•the outcome of any pending or threatened ~~litigation;~~or potential litigation, including any litigation that has been or may be instituted against usrelating to our recently completed acquisition of the WarnerMedia Business;

•availability of qualified ~~personnel;~~personnel and recruiting, motivating and retaining talent;

•the possibility or duration of an industry-wide strike or other job action affecting a major entertainment industry ~~union;~~union or others involved in the development and production of our television programming, feature films and interactive entertainment (e.g., games) who are covered by collective bargaining agreements;

•changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission and similar authorities internationally and data privacy regulations and adverse outcomes from regulatory proceedings;

•changes in income taxes due to regulatory changes or changes in our corporate structure;

•changes in the nature of key strategic relationships with partners, distributors and equity method investee partners;

•competitor responses to our products and services and the products and services of the entities in which we have interests;

•threatened or actual cyber-attacks and cybersecurity breaches;

•threatened ~~or actual~~ terrorist attacks and military ~~action;~~action, including the intensification or expansion of the conflict in Ukraine;

•service disruptions or the failure of communications satellites or transmitter facilities;

•theft of our content and unauthorized duplication, distribution and exhibition of such content;

•changes in existing U.S. and foreign laws and regulations, as well as possible private rights of action, regarding intellectual property rights protection and privacy, personal data protection and user consent;

•potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the Federal Communications Commission could negatively impact our WarnerMedia Business's ability to deliver pay-TV network feeds of our domestic pay-TV programming networks to our affiliates, and, in some cases, to produce high-value news and entertainment programming on location;

•our level of ~~debt;~~debt, including the significant indebtedness incurred in connection with the acquisition of the WarnerMedia Business, and our future compliance with debt covenants;

•reduced access to capital markets or significant increases in costs to ~~borrow;~~borrow, including as a result of higher interest rates and perceived, potential or actual inflation; and

•a reduction of advertising revenue associated with unexpected reductions in the number of subscribers.

These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill or other intangibles. Additionally, many of these risks are currently amplified by and may, in the future, continue to be amplified by the prolonged impact of the COVID-19 pandemic. For additional risk factors, refer to Part I, Item 1A, “Risk Factors,” in our ~~2020 Annual Report on~~2021 Form 10-K and Part II, Item 1A, ~~"Risk Factors"~~“Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Q1 10-Q”) and this Quarterly Report on Form ~~10-Q.~~10-Q for the period ended June 30, 2022. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

ITEM 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.

Quantitative and qualitative disclosures about our existing market risk are set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the ~~2020~~2021 Form 10-K. Our exposures to market risk have not changed materially since December 31, ~~2020.~~

2021.

ITEM 4. Controls and ~~Procedures~~Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2021.~~2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2021,~~2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

On April 8, 2022, Discovery completed its merger with WM. (See Note 3 to the accompanying consolidated financial statements). We are currently integrating policies, processes, people, technology and operations for the combined company. Management will continue to evaluate our internal control over financial reporting as we execute integration activities. During the three months ended June 30, ~~2021,~~2022, except as noted above, there were no changes in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the normal course of business, we experience routine claims and legal proceedings. It is the opinion of our management, based on information available at this time, that none of the current claims and proceedings will have a material adverse effect on our consolidated financial position, results of operations or cash flows. ~~See~~(See Note 1619 to the accompanying consolidated financial statements.)

As of July 1, 2022, eight lawsuits had been filed by alleged Discovery stockholders against the Company related to the preliminary proxy statement filed with the SEC in connection with the Merger. The cases have been dismissed.

The dismissed cases are as follows: A complaint captioned Rahman v. Discovery Inc. et al., Case No. 1:21-cv-09785 (the “Rahman Complaint”), was filed in the United States District Court for the Southern District of New York on November 23, 2021. A complaint captioned Chiao v. Discovery Inc. et al., Case No. 1:21-cv-10409, was filed in the United States District Court for the Southern District of New York on December 6, 2021. A complaint captioned Whitfield v. Discovery Inc. et al., Case No. 1:21-cv-10514 (the “Whitfield Complaint”), was filed by Matthew Whitfield in the United States District Court for the Southern District of New York on December 8, 2021. A complaint captioned Solakian v. Discovery Inc. et al., Case No. 1:21-cv-06806, was filed in the United States District Court for the Eastern District of New York on December 8, 2021. A complaint captioned Finger v. Discovery Inc. et al., Case No. 2:21-cv-09799, was filed in the United States District Court for the Central District of California on December 20, 2021. A complaint captioned Ciccotelli v. Discovery Inc. et al., Case No. 2:21-cv-05566, was filed in the United States District Court for the Eastern District of Pennsylvania on December 21, 2021. A complaint captioned Kent v. Discovery Inc. et al., Case No. 1:22-cv-00033-UNA, was filed by Michael Kent in the United States District Court for the District of Delaware on January 7, 2022. A complaint captioned Jones v. Discovery Inc. et al., Case No. 1:22-cv-00204, was filed by Brian Jones in the United States District Court for the Southern District of New York on January 10, 2022. Each of the above complaints named as defendants Discovery and members of the Discovery Board. The Whitfield Complaint and the Rahman Complaint also named as defendants AT&T, Inc. and Drake Subsidiary, Inc. The Whitfield Complaint named Magallanes, Inc. as an additional defendant. Each of the complaints alleged violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder. The complaints generally alleged that the respective defendants filed a materially incomplete and misleading preliminary proxy statement with the SEC. Each of the complaints sought injunctive relief, damages and other relief.

ITEM 1A. Risk Factors

Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition and cash flows as set forth under Part I, Item 1A - Risk Factors of the Company’s ~~Annual Report on~~2021 Form 10-K ~~for~~and Part II, Item 1A - Risk Factors of the ~~year ended December 31, 2020, and~~Company's Q1 Form 10-Q, as supplemented by the ~~updated and~~ additional risk ~~factors~~factor described below under “Risks Related to Our Industry.” In addition, certain of the risks described in our 2021 Form 10-K and Q1 Form 10-Q are amended and restated as set forth below.

Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position and cash flows.

~~Risk Factors~~Risks Related to ~~the Combination~~our Acquisition of ~~Discovery and AT&T’s~~the WarnerMedia Business

~~On May 17, 2021,~~We could be required to recognize impairment charges related to goodwill and other intangible assets.

The Merger added a significant amount of goodwill and other intangible assets to our consolidated balance sheet. In accordance with GAAP, management periodically assesses these assets to determine if they are impaired. Significant negative industry or economic trends, including the ongoing effects of the COVID-19 pandemic, disruptions to our business, inability to effectively integrate acquired businesses, underperformance of the WarnerMedia Business as compared to management's initial expectations, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments could materially adversely affect our results of operations in the periods recognized.

We may be unable to provide (or obtain from third parties) the same types and level of services to the WarnerMedia Business that historically have been provided by AT&T or may be unable to provide (or obtain) them at the same cost.

Prior to the Merger, as part of a separate reporting segment of AT&T, the WarnerMedia Business was able to receive services from AT&T. Following the Merger, we have replaced these services either by providing them internally from our existing services or by obtaining them from unaffiliated third parties, including AT&T. These services include AT&T bundling HBO Max with some of its wireless and broadband offerings, and certain administrative and operating functions of which effective and appropriate performance is critical to the operations of the WarnerMedia Business and the Company ~~our wholly owned subsidiary Drake Subsidiary, Inc.,~~as a whole following the Merger. AT&T ~~Inc. (“AT&T”) and AT&T’s wholly owned subsidiary Magallanes, Inc. entered into definitive agreements~~is providing certain services on a transitional basis pursuant to ~~which and~~a Transition Services Agreement (the “TSA”) with us. The duration of such services is subject to a limited term set out in the Services Schedule to the TSA. We may have difficulty enforcing the terms of the agreements governing the provision of these services or be unable to replace these services in a timely manner or on terms and conditions ~~therein (1) AT&T will transfer the business, operations and activities that constitute~~as favorable as those the WarnerMedia ~~segment~~Business currently receives from AT&T. The costs for these services, or the costs associated with replacing these services, could in the aggregate be higher than the combination of ~~AT&T, subject~~our historical costs and those reflected in the historical financial statements of the WarnerMedia Business. If we are unable to ~~certain exceptions (the “WarnerMedia Business”) to Magallanes, Inc. (such transfer,~~replace the ~~“Separation”), (2) AT&T will distribute to its stockholders the issued and outstanding shares of common stock of Magallanes, Inc. held~~services provided by AT&T ~~(such distribution,~~or are unable to replace them at the ~~“Distribution”)~~same cost or are delayed in replacing the services provided by AT&T, our results of operations may be materially adversely impacted.

If the results of operations of the WarnerMedia Business following the Merger continue to be below management’s expectations, the Company may not achieve the increases in revenues and ~~(3) Drake Subsidiary, Inc.~~net earnings that management expects as a result of the Merger.

In connection with our comprehensive business and strategic review which commenced following the Merger, we determined that certain WarnerMedia budget projections that were made available to us prior to closing varied from what we now view as WarnerMedia’s baseline post-closing. We are actively implementing actions to address these issues. However, as we derive a majority of our revenues and net earnings from the WarnerMedia Business, if the results of operations of the WarnerMedia Business continue to be below management’s expectations, we may not achieve the increases in revenue and net earnings expected as a result of the Merger.Significant factors that could negatively impact the results of operations of the WarnerMedia Business, and therefore harm the results of operations of the Company, include:

•more intense competitive pressure from existing or new competitors;

•fluctuations in the exchange rates in the jurisdictions in which the WarnerMedia Business operates;

•increases in promotional and operating costs for the WarnerMedia Business;

•a decline in the viewership or consumption of content provided by the WarnerMedia Business; and

•additional material variations in the results of operations of the WarnerMedia Business from expectations or projections of such results of operations, any or all of which may prove to be incorrect or inaccurate.

Risks Related to our Industry

If our DTC products fail to attract and retain subscribers, our business, financial condition and results of operations may be adversely impacted.

In January 2021, Discovery launched an aggregated DTC product, discovery+, in the U.S. In May 2020, the WarnerMedia Business launched HBO Max in the U.S. We have incurred and will ~~merge~~likely continue to incur significant costs to develop and market discovery+ and HBO Max, including costs related to developing and implementing a go-to-market strategy that coordinates and/or combines our DTC products, and there can be no assurance that consumers and advertisers will embrace our offerings or that subscribers will activate or renew a subscription.

Our discovery+ and HBO Max offerings are subscription-based streaming products and are among many such services in a crowded and competitive landscape. Their success will also be largely dependent on our ability to initially attract, and ultimately retain, subscribers. Competitors to discovery+ and HBO Max include traditional linear programming networks, including our own linear channels, competing subscription video-on-demand services, and other digital entertainment platforms and offerings all vying for consumer time, attention and discretionary spending. If we are unable to effectively market our DTC products or if consumers do not perceive the pricing and related features of our DTC products to be of value versus our competitors, we may not be able to attract and retain subscribers. In particular, decreases in consumer discretionary spending where our DTC products are offered may reduce our ability to attract and retain subscribers to our services, which could have a negative impact on our business. Relatedly, a decrease in viewing subscribers on our advertising-supported DTC products could also have a negative impact on the rates we are able to charge advertisers for advertising-supported services. The ability to attract and retain subscribers will also depend in part on our ability to provide compelling content choices that are differentiated from that of our competitors and that are more attractive than other sources of entertainment that consumers could choose in their free time. Furthermore, our ability to provide a quality subscriber experience and our relative service levels, may also impact our ability to attract and retain subscribers. If existing subscribers, including those who receive subscriptions through wireless and broadband bundling arrangements with third parties, cancel or discontinue their subscriptions for any reason, including as a result of selecting an alternative wireless or broadband plan that does not bundle our products, or due to the availability of competing offerings that are perceived to offer greater value compared to our DTC products, our business may be adversely affected. We must continue to add new subscribers both to replace subscribers who cancel or discontinue their subscriptions and ~~into Magallanes, Inc. with Magallanes, Inc.~~to grow our business. If we are unable to attract and retain subscribers and offset the losses of subscribers who cancel or discontinue their subscriptions to our DTC products, our business, financial condition and results of operations could be adversely affected.

Forecasting our financial results requires us to make judgements and estimates which may differ materially from actual results.

Given the dynamic nature of our business, the current uncertain economic climate and the inherent limitations in predicting the future, forecasts of our revenues, Adjusted EBITDA, free cash flow and core subscriber growth, and other financial and operating data, may differ materially from actual results, including as a result of events outside of our control and other risks and uncertainties described herein. Such discrepancies could cause a decline in the ~~surviving entity and~~trading price of our common stock.

ITEM 5. Other Information

Aircraft Time Sharing Agreement

On August 1, 2022, Warner Media LLC (“Warner”), a wholly owned subsidiary of the Company, ~~(such merger,~~entered into an aircraft time sharing agreement for the ~~“Merger”~~use of Warner’s aircrafts (the “Aircraft Time Sharing Agreement”) with David Zaslav, the Company’s President and Chief Executive Officer.

Under the ~~Separation, Distribution~~Aircraft Time Sharing Agreement and ~~Merger collectively,~~in accordance with Mr. Zaslav’s amended and restated employment agreement, dated as of May 16, 2021 (as amended, the ~~“Combination”~~“Employment Agreement”), Mr. Zaslav is entitled to use the Company’s aircrafts for up to 250 hours of personal use per year, which includes Mr. Zaslav’s spouse traveling separately on the aircraft if such travel is to join Mr. Zaslav at a location where he has travelled for business purposes. The Company shall pay for the first 125 hours of personal use and Mr. Zaslav shall reimburse the Company for personal use in excess of 125 hours. Under the Aircraft Time Sharing Agreement, the reimbursement rate is two times the actual fuel cost for the airplane, in accordance with FAA-permitted reimbursement methods.

Amendment No. 2 to DCL Revolving Credit Agreement

On August 2, 2022, DCL, the Company, Scripps Networks, WMH, certain lenders party thereto and Bank of America, N.A., as administrative agent, entered into the second amendment to the DCL Revolving Credit Agreement (“Amendment No. 2 to Revolver”) to amend the definition of “Consolidated EBITDA” to add back certain cash restructuring costs, charges or expenses subject to a cap equal to 15% of Consolidated EBITDA (prior to giving effect to such add-back).

The foregoing description of Amendment No. 2 to Revolver does not purport to be complete and is qualified in its entirety by reference to Amendment No. 2 to Revolver, a copy of which is attached hereto as Exhibit 10.6 and incorporated by reference herein.

Amendment No. 1 to WMH Term Loan Credit Agreement

On August 2, 2022, WMH, the Company, Scripps Networks, DCL, certain lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent, entered into the first amendment to the WMH Term Loan Credit Agreement (“Amendment No. 1 to Term Loan”) to amend the definition of “Consolidated EBITDA” to add back certain cash restructuring costs, charges or expenses subject to a cap equal to 15% of Consolidated EBITDA (prior to giving effect to such add-back).

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The ~~pendency~~foregoing description of Amendment No. 1 to Term Loan does not purport to be complete and is qualified in its entirety by reference to Amendment No. 1 to Term Loan, a copy of which is attached hereto as Exhibit 10.7 and incorporated by reference herein.

JB Perrette Employment Agreement

On August 2, 2022, Discovery Communications, LLC, a wholly owned subsidiary of the ~~proposed Combination~~Company, entered into an employment agreement with JB Perrette, our President and CEO, Global Streaming and Games (the “Perrette Agreement”).

Pursuant to the Perrette Agreement, Mr. Perrette will continue to serve as our President and CEO, Global Streaming and Games. The term of the Perrette Agreement is effective as of August 2, 2022 and runs through August 1, 2025. The parties may ~~cause disruption~~agree to renew the Perrette Agreement at the end of the term. If we desire to renew the Perrette Agreement, Mr. Perrette must be notified to that effect, in ~~our business.~~writing, no later than 150 days prior to the end of the term of the Perrette Agreement. If a “qualifying renewal offer” (as described below) is not made to Mr. Perrette, Mr. Perrette will be eligible for severance payments in connection with his termination.

~~The definitive agreement~~For purposes of the Perrette Agreement, a “qualifying renewal offer” is an offer to renew the term of the Perrette Agreement with a meaningful increase in base salary and ~~plan~~a bonus target that is at least the same level as in effect under the Perrette Agreement at the end of ~~merger~~his term, and with other material terms that are at least as favorable to Mr. Perrette in the aggregate as the material terms of the Perrette Agreement.

Under the Perrette Agreement, Mr. Perrette’s base salary was increased from £1.525 million per annum to $2.5 million per annum, effective as of April 8, 2022 (the ~~“Merger Agreement”~~same day as the closing of the Merger (the “Closing”). Future salary increases will be reviewed and decided in accordance with the Company’s standard practices and procedures for similarly situated executives. Mr. Perrette’s target annual bonus was increased from 175% of his base salary to 200% of his base salary, effective as of the Closing. There is no guaranteed annual bonus amount. Mr. Perrette is also entitled to certain tax-related benefits related to his relocation from the ~~Combination restricts us~~United Kingdom to Los Angeles, California. In addition, two times per year, Mr. Perrette will be permitted to be accompanied by his family on the Company’s corporate airplane in connection with Mr. Perrette’s business duties in Europe.

Mr. Perrette will also be considered for annual equity grants under the Warner Bros. Discovery, Inc. Stock Incentive Plan (the “Plan”) in accordance with our normal executive compensation processes and practices. Beginning in 2023, and subject to approval from ~~taking specified actions without AT&T’s consent until~~our Compensation Committee, such annual equity grants will have a target grant date value of $8.5 million per annum. Mr. Perrette will also be granted a one-time award of 146,736 restricted stock units (“RSUs”) under the ~~Combination is completed~~Plan. This one-time award of RSUs shall vest in three equal annual installments, with the first installment vesting on August 2, 2023. The award documents that evidence equity awards made to Mr. Perrette pursuant to the Perrette Agreement shall provide for double-trigger vesting upon an Approved Transaction, Board Change or the Merger Agreement is terminated, including making certain significant acquisitions or investments, entering into certain new lines of business, incurring certain indebtedness in excess of certain thresholds, making non-ordinary course capital expenditures, amending or modifying certain material contracts, divesting certain assets (including certain intellectual property rights), and making certain non-ordinary course changes to personnel and employee compensation. These restrictions and others more fully describedControl Purchase (each as defined in the ~~Merger~~Plan). The terms of the equity awards granted to Mr. Perrette under the Perrette Agreement ~~may affect~~will otherwise be consistent with our ~~ability~~normal executive compensation processes and practices, with vesting subject to ~~execute our business strategies and attain our financial~~continued employment, and other ~~goals~~terms and conditions, as well as approval of our Compensation Committee in each case.

Mr. Perrette’s employment may ~~impact our financial condition, results of operations and cash flows.~~

~~The pendency~~be terminated for “cause.” “Cause” for purposes of the ~~proposed Combination could cause disruptions~~Perrette Agreement means: (i) the conviction of, or nolo contendere or guilty plea, to a felony (whether any right to appeal has been or may be exercised); (ii) conduct constituting embezzlement, misappropriation or fraud, whether or not related to Mr. Perrette’s employment with us; (iii) conduct constituting a financial crime, material act of dishonesty or conduct in material violation of our Code of Ethics or other of our written policies of which Mr. Perrette has knowledge; (iv) improper conduct substantially prejudicial to our business (whether financial or ~~business relationships, which could have an adverse impact on~~otherwise); (v) willful unauthorized disclosure or use of our ~~results~~confidential information; (vi) material improper destruction of ~~operations. Parties with which we have business relationships, including distributors, advertisers and content providers, may be uncertain as to the future of such relationships and may delay~~our property; or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

The pursuit of the Combination and the preparation for the integration of the WarnerMedia Business is expected to place a significant burden on our management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.

~~We have incurred and will continue to incur significant costs, expenses and fees for professional services and other transaction costs~~(vii) willful misconduct in connection with the ~~Combination. We~~performance of Mr. Perrette’s duties. If Mr. Perrette’s employment is terminated for “cause,” he will be entitled to receive only amounts or benefits that have been earned or vested at the time of his termination, or as may ~~also incur unanticipated costs in~~be required by applicable law.

If Mr. Perrettes’s employment is terminated without “cause” (as defined above) or by Mr. Perrette for “good reason”, Mr. Perrette will be eligible to receive the ~~integration~~following severance payments: (a) base salary for the longest of (i) the balance of the ~~WarnerMedia Business with~~term of employment under the ~~business~~Perrette Agreement, (ii) twelve (12) months, or (iii) the number of ~~Discovery. The substantial majority~~weeks of ~~these costs will be non-recurring expenses relating~~severance Mr. Perrette would otherwise have been entitled to ~~the Combination, and many of these costs are payable regardless of whether or not the Combination is consummated. We also could be~~under our severance plan, in each case subject to ~~litigation related~~a maximum of twenty-four (24) months; (b) annual bonus payments at target under our annual incentive plan for each year in which Mr. Perrette is entitled to ~~the proposed Combination,~~base salary continuation under clause (a) above (subject to proration for partial years); and (c) reimbursement of up to eighteen (18) months of COBRA premiums. In certain circumstances in which ~~could prevent or delay the consummation~~Mr. Perrette is relieved of ~~the Combination and result in significant costs and expenses.~~

~~Failure to complete the Combination in a timely manner or at~~ all ~~could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows.~~

We currently anticipate the Combination will be completed in mid-2022, but the Combination cannot be completed until conditions to closing are satisfied or (if permissible under applicable law) waived. The Combination is subject to numerous closing conditions, including approval by Discovery’s stockholders, receipt of certain regulatory approvals, AT&T’s receipt of a private letter ruling from the Internal Revenue Service regarding the qualification of the Distribution and certain related transactionswork responsibilities for tax-free treatment under the Internal Revenue Code and AT&T's receipt of a special cash payment in accordance with the terms of the Separation and Distribution Agreement by and among Discovery, AT&T and Magallanes, Inc.

~~The satisfaction of the required conditions could delay the completion of the Combination for a significant~~some period of time ~~or prevent it from occurring. Further, there can be no assurance that the conditions to the closing of the Combination will be satisfied or waived or that the Combination will be completed.~~

~~If the Combination is not completed in a timely manner or at all, our ongoing business may be adversely affected as follows:~~

•we may experience negative reactions from the financial markets, and our stock price could decline to the extent that the current market price reflects an assumption that the Combination will be completed;

•~~we may experience negative reactions from employees, customers, suppliers or other third parties;~~

•~~we may be subject to litigation, which could result in significant costs and expenses;~~

•~~management’s focus may have been diverted from day-to-day business operations and pursuing other opportunities that could have been beneficial to Discovery; and~~

•~~our costs of pursuing the Combination may be higher than anticipated.~~

In addition to the above risks, we may be required, under certain circumstances, to pay AT&T a termination fee equal to $720 million and/or to reimburse or indemnify AT&T for certain of its expenses. If the Combination is not consummated, there can be no assurance that these risks will not materialize and will not materially adversely affect our stock price, business, financial condition, results of operations or cash flows.

In order to complete the Combination, Discovery and AT&T must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, completion of the Combination may be jeopardized or the anticipated benefits of the Combination could be reduced.

Although Discovery and AT&T have agreed to use reasonable best efforts, subject to certain limitations, to make certain governmental filings and obtain the required governmental approvals or expiration or earlier termination of relevant waiting periods, as the case may be, there can be no assurance that the relevant waiting periods will expire or be terminated or that the relevant approvals will be obtained. As a condition to approving the Combination, these governmental authorities may impose conditions, terms, obligations or restrictions or require divestitures or place restrictions on the conduct of our business after completion of the Combination. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying or preventing completion of the Combination or imposing additional material costs on or materially limiting the revenues of the combined company following the Combination, or otherwise adversely affecting, including to a material extent, our businesses and results of operations after completion of the Combination. If we or the WarnerMedia Business are required to divest assets or businesses, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on favorable terms or that the governmental authorities will approve the terms of such divestitures. We can provide no assurance that these conditions, terms, obligations or restrictions will not result in the abandonment of the Combination.

Although we expect that the Combination will result in synergies and other benefits to us, we may not realize those benefits because of difficulties related to integration, the achievement of such synergies, and other challenges.

Discovery and the WarnerMedia Business have operated and, until completion of the Combination, will continue to operate, independently, and there can be no assurances that our businesses can be combined in a manner that allows for the achievement of substantial benefits. If we are not able to successfully integrate the WarnerMedia Business with ours or pursue our direct-to-consumer strategy successfully, including coordinating our streaming services for global customers, the anticipated benefits, including synergies, of the Combination may not be realized fully or may take longer than expected to be realized. Specifically, the following issues, among others, must be addressed in combining the operations of Discovery and the WarnerMedia Business in order to realize the anticipated benefits of the Combination:

•combining the businesses of Discovery and the WarnerMedia Business in a manner that permits us to achieve the synergies anticipated to result from the Combination, the failure of which would result in the anticipated benefits of the Combination not being realized in the time frame currently anticipated or at all;

•maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors;

•~~combining certain of the businesses’ corporate functions;~~

•~~determining whether and how to address possible differences in corporate cultures and management philosophies;~~

•~~integrating the businesses’ administrative and information technology infrastructure;~~

•~~integrating employees and attracting and retaining key personnel, including talent;~~

•~~managing the expanded operations of a significantly larger and more complex company;~~

•~~coordinating the businesses’ direct-to-consumer streaming services for global customers; and~~

•~~resolving potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Combination.~~

Even if the operations of our business and the business of the WarnerMedia Business are integrated successfully, the full benefits of the Combination may not be realized, including, among others, the synergies that are expected. These benefits may not be achieved within the anticipated time frame or at all. Additional unanticipated costs may also be incurred in the integration of our business and the business of the WarnerMedia Business. Further, it is possible that there could be loss of key Discovery or WarnerMedia Business employees, loss of customers, disruption of either or both of Discovery’s or WarnerMedia Business’ ongoing businesses or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally anticipated. All of these factors could materially adversely affect our stock price, business, financial condition, results of operations or cash flows.

Our consolidated indebtedness will increase substantially following completion of the Combination. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.

Our consolidated indebtedness as of June 30, 2021 was approximately $15.5 billion. Upon completion of the Combination, we expect to assume or incur up to $43.0 billion of additional debt, including existing debt of the existing WarnerMedia Business, debt that may be issued by Magallanes, Inc. to AT&T and debt that Magallanes, Inc. may incur to fund a special cash payment to AT&T. In addition, subject to certain conditions, availability under our revolving credit facility will increase from $2.5 billion to $6.0 billion. The increased indebtedness could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions, increasing our vulnerability to general adverse economic and industry conditions and limiting our ability to obtain additional financing in the future. In addition, the amount of cash required to pay interest on our indebtedness levels will increase following completion of the Combination, and thus the demands on our cash resources will be greater than prior to the ~~Combination. The increased levels~~effective date of ~~indebtedness following completion~~his termination of employment, salary paid during this period of “garden leave” will be offset against the severance amounts otherwise payable to Mr. Perrette. “Good reason” under the Perrette Agreement means: (a) a material reduction in Mr. Perrette’s duties or responsibilities; (b) a material change in the location of the Combination could also reduce funds available for capital expenditures, share repurchases, investments, mergers and acquisitions, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels.

~~Following consummation~~office where Mr. Perrette works (i.e., relocation outside the Los Angeles, CA metropolitan area); or (c) a material breach of the ~~Combination, our corporate~~Perrette Agreement by us, including a diminution of Mr. Perrette’s title or debt-specific credit rating could be downgraded, which may increase our borrowing costs or give rise to a need to refinance existing indebtedness. If a ratings downgrade occurs, we may need to refinance existing debt or be subject to higher borrowing costs and more restrictive covenants when we incur new debtchange in the ~~future,~~position to which ~~could reduce profitability and diminish operational flexibility.~~

~~Risk Factors Related to our International Operations~~

WeMr. Perrette reports. These severance amounts are ~~subject to risks related to our international operations.~~

~~We have operations through which we distribute programming outside the United States. As~~contingent on Mr. Perrette executing a ~~result, our business is subject to certain risks inherent in international business, many~~release of ~~which are beyond our control. These risks include:~~

•~~laws and policies affecting trade and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;~~

•~~changes in local regulatory requirements, including restrictions on content, imposition of local content quotas and restrictions~~claims. Additionally, if Mr. Perrette secures employment or ~~prohibitions on foreign ownership;~~

•~~our ability to obtain the appropriate licenses and other regulatory approvals we need to broadcast content in foreign countries;~~

•~~differing degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property;~~

•~~significant fluctuations in foreign currency value;~~

•~~currency exchange controls;~~

•~~the instability of foreign economies and governments;~~

•~~war and acts of terrorism;~~

•anti-corruption laws and regulations such as the Foreign Corrupt Practices Act and the U.K. Bribery Act that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations;

•~~foreign privacy and data protection laws and regulation and changes in these laws; and~~

•~~shifting consumer preferences regarding the viewing of video programming.~~

Events or developments related to these and other risks associated with international trade could adversely affect our revenues from non-U.S. sources, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects. Acts of terrorism, hostilities, or financial, political, economicany consulting, contractor or other ~~uncertainties could lead to a reduction in revenue or loss of investment,~~business arrangement for services during the period during which ~~could adversely affect our results of operations. Furthermore, some foreign markets where we and our partners operate~~he is receiving severance payments, the severance payments he is receiving may be ~~more adversely affected~~reduced by ~~current economic conditions than~~ the ~~U.S. We~~amounts otherwise payable under the Perrette Agreement by the amount Mr. Perrette receives for those services.

The Perrette Agreement also ~~may incur substantial expense as~~contains certain nonsolicitation covenants effective during Mr. Perrette’s employment and for a ~~result~~period of ~~changes, including~~twelve (12) months after the ~~imposition~~conclusion of ~~new restrictions,~~Mr. Perrette’s employment. If Mr. Perrette ceases to comply with the nonsolicitation clauses in the ~~existing economic or political environment in the regions where we do business.~~This is of particular concern in Poland, where we operate TVN, a key component of our international business, and where the government currently has under consideration, and may adopt in the future, new regulations thatPerrette Agreement, any unpaid severance payments would ~~prohibit non-European Union ownership of Polish licensed free-to-air and pay-TV channels.~~If such regulations are adopted, it could impact the ownership structure and licensing of TVN, and could, directly or indirectly, affect the operations of our Polish media properties and/or modify the terms under which we offer our services and operate in that market.be terminated.

~~General Risks~~

~~Domestic and foreign laws and regulations could adversely impact our operating results.~~

Programming services like ours, and the distributors of our services, including cable operators, satellite operators and other multi-channel video programming distributors, are regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the FCC, as well as by state and local governments, in ways that affect the daily conduct of our video content business. See the discussion under “Business – Regulatory Matters” that appears in our Annual Report on Form 10-K for the year ended December 31, 2020. The U.S. Congress, the FCC and the courts currently have under consideration, and may adopt or interpret in the future, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operations of our U.S. media properties or modify the terms under which we offer our services and operate.

Similarly, the foreign jurisdictions in which our networks are offered have, in varying degrees, laws and regulations governing our businesses. Programming businesses are subject to regulation on a country-by-country basis. Changes in regulations imposed by foreign governments could also adversely affect our business, results of operations and ability to expand our operations beyond their current scope. The Polish government currently has under consideration, and may adopt in the future, new regulations that would prohibit non-European Union ownership of Polish licensed free-to-air and pay-TV channels. If such regulations are adopted, it could impact the ownership structure and licensing of TVN, which is a key component of our international business, and could, directly or indirectly, affect the operations of our Polish media properties and/or modify the terms under which we offer our services and operate in that market.

~~The market price of our common stock has been highly volatile and may continue to be volatile due to circumstances beyond our control.~~

~~The market price of our common stock has fluctuated, and may continue to fluctuate, widely, due to many factors, some of which may be beyond our control. These factors include, without limitation:~~

•~~large stockholders exiting their position in our common stock;~~

•~~an increase or decrease in the short interest in our common stock;~~

•~~comments by securities analysts or other third parties, including blogs, articles, message boards, and social and other media;~~

•~~actual or anticipated fluctuations in our financial and operating results;~~

•~~risks and uncertainties associated with the ongoing COVID-19 pandemic;~~

•~~development and provision of programming for new television and telecommunications technologies and the success of our new discovery+ streaming product;~~

•~~spending on domestic and foreign television advertising;~~

•changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders, subscription video on demand, internet protocol television, mobile personal devices, and personal tablets and their impact on television advertising revenue;

•~~fluctuations in foreign currency exchange rates;~~

•~~public perception of us, our competitors, or industry; and~~

•~~overall general market fluctuations.~~

Stock markets in general and our stock price in particular have recently experienced extreme price and volume fluctuations that have been unrelated or disproportionate to the operating performance of those companies and our company. For example, on March 26, 2021, our Series A common stock experienced an intra-day trading high of $58.21 per share and a low of $34.60 per share while our Series C common stock experienced an intra-day trading high of $51.36 and a low of $30.99 per share. In addition, from July 1, 2020 to June 30, 2021, the closing price of our Series A common stock and our Series C common stock on the Nasdaq ranged from as low as $19.25 and $17.25 to as high as $77.27 and $66.00, respectively, and daily trading volume ranged from approximately 1.8 million and 0.6 million shares to 106.1 million and 45.7 million shares, respectively. During this time, we have not experienced any material changes in our financial condition or results of operations that would explain such price volatility or trading volume. In particular, sales of large blocks of our Series A common stock and Series C common stock on and after March 26, 2021, reportedly conducted by financial institutions unwinding hedge positions associated with margin calls against Archegos Management put pressure on the supply and demand for our common stock, further influencing volatility in its market price. These market fluctuations and trading activities have caused and may in the future cause the market price and demand for our common stock to fluctuate substantially, which may negatively affect the price and liquidity of our common stock.

5371

ITEM 6. Exhibits.



Exhibit No.						Description

2.1						Amendment No. 2 to Agreement and Plan of Merger, dated ~~May 17, 2021,~~as of April 8, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc., WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) and Drake Subsidiary, Inc. ~~(incorporated by reference to Exhibit 2.1 to the Form 8-K filed on May 20, 2021 (SEC File No. 001-34177)~~(filed herewith).

2.2						Letter Agreement, dated as of March 29, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc., WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) and Drake Subsidiary, Inc. (filed herewith).

2.3						Letter Agreement, dated as of April 8, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc., WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) and Drake Subsidiary, Inc. (filed herewith).

2.4						Amendment to Separation and Distribution Agreement, dated as of ~~May 17, 2021,~~April 8, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc. and WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) (filed herewith).*

3.1						Second Restated Certificate of Incorporation of Warner Bros. Discovery, Inc. (incorporated by reference to Exhibit ~~2.2 to the~~3.1 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on ~~May 20, 2021~~April 12, 2022).

3.2						Amended and Restated Bylaws of Warner Bros. Discovery, Inc. (incorporated by reference to Exhibit 3.2 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

4.1						Twentieth Supplemental Indenture, dated as of April 8, 2022, by and among Discovery Communications, LLC, Warner Bros. Discovery, Inc., WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).**

4.2						Twenty-First Supplemental Indenture, dated as of April 8, 2022, by and among Discovery Communications, LLC, Warner Bros. Discovery, Inc., WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.2 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

4.3						Indenture, dated as of March 15, 2022, by and among WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.), AT&T Inc. and U.S. Bank Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.3 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

4.4						First Supplemental Indenture, dated as of April 8, 2022, by and among WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.), Warner Bros. Discovery, Inc., Discovery Communications, LLC, Scripps Networks Interactive, Inc., and U.S. Bank Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.4 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

4.5						Registration Rights Agreement, dated as of March 15, 2022, by and among WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.), J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC (incorporated by reference to Exhibit 4.5 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

4.6						Counterpart to Registration Rights Agreement, dated as of April 8, 2022, by and between Warner Bros. Discovery, Inc., Discovery Communications, LLC and Scripps Networks Interactive, Inc. (filed herewith).

4.7						Amended and Restated Registration Rights Agreement, dated as of April 11, 2022, by and among Warner Bros. Discovery, Inc., Advance/Newhouse Partnership and Advance/Newhouse Programming Partnership (incorporated by reference to Exhibit 4.6 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

4.8						Form of Series A Common Stock Certificate of Warner Bros. Discovery, Inc. (incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 filed on March 28, 2022 (SEC File No. ~~001-34177)~~333-261188)).


10.1						~~Voting~~Transition Services Agreement, dated as of ~~May 17, 2021,~~April 8, 2022, by and ~~among Discovery, Inc.,~~between AT&T Services, Inc., and WarnerMedia Holdings, Inc. (f/k/a Magallanes, ~~Inc., John C. Malone, John C. Malone 1995 Revocable Trust, Malone Discovery 2021 Charitable Remainder Unitrust and Malone CHUB 2017 Charitable Remainder Unitrust~~Inc ) (incorporated by reference to Exhibit 10.1 ~~to the~~on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on ~~May 20, 2021 (SEC File No. 001-34177)~~April 12, 2022).*

10.2						~~Voting~~Intellectual Property Matters Agreement, dated as of ~~May 17, 2021,~~April 8, 2022, by and among ~~Discovery~~AT&T Inc., AT&T Intellectual Property LLC and Warn erMedia Holdings, Inc., (f/k/a Magallanes, Inc.~~, Advance/Newhouse Programming Partnership and Advance/Newhouse Partnership~~) (incorporated by reference to Exhibit 10.2 ~~to the~~on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on ~~May 20, 2021 (SEC File No. 001-34177)~~April 12, 2022).*†

10.3						~~Employee Matters~~Credit Agreement, dated as of ~~May 17,~~June 4, 2021, by and among ~~Discovery,~~WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc., ~~AT&T Inc.~~the lenders named therein and ~~Magallanes, Inc.~~JPMorgan Chase Bank, N.A., as agent (incorporated by reference to Exhibit 10.3 ~~to the~~on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on ~~May 20, 2021 (SEC File No. 001-34177)~~April 12, 2022).

10.4						~~Amended and Restated Employment~~Joinder Agreement, dated as of ~~May 16, 2021,~~April 8, 2022, by and between ~~David Zaslav and~~Warner Bros. Discovery, Inc. ~~(incorporated by reference to Exhibit 10.4 to the Form 8-K filed on May 20, 2021 (SEC File No. 001-34177)~~(f/k/a Discovery, Inc.), Discovery Communications, LLC, Scripps Networks Interactive, Inc. and JPMorgan Chase Bank, N.A., as agent (filed herewith).

10.5						~~Form~~Joinder Agreement, dated as of ~~David Zaslav Stock Option Grant Agreement (incorporated~~April 8, 2022, by ~~reference to Exhibit 10.5 to the Form 8-K filed on May 20, 2021 (SEC File No. 001-34177)~~and between WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) and Bank of America, N.A., as administrative agent (filed herewith).


10.6						~~Consent Agreement, dated as of May 17, 2021, by and among Discovery Inc., Advance/Newhouse Programming Partnership and Advance/Newhouse Partnership (incorporated by reference~~Amendment No. 2 to ~~Exhibit 10.6 to the Form 8-K filed on May 20, 2021 (SEC File No. 001-34177)~~

~~10.7~~						Tax Matters Agreement, dated as of May 17, 2021, between AT&T Inc., Magallanes, Inc. and Discovery, Inc. (incorporated by reference to Exhibit 10.7 to the Form 8-K filed on May 20, 2021 (SEC File No. 001-34177)

~~10.8~~						Credit Agreement, dated as of ~~June 9, 2021,~~August 2, 2022, by and among Discovery Communications, LLC, ~~(“DCL”), certain wholly-owned subsidiaries of DCL,~~Warner Bros. Discovery, Inc., ~~as Facility Guarantor,~~ Scripps Networks Interactive, Inc., ~~as subsidiary guarantor, the~~WarnerMedia Holdings, Inc., certain lenders ~~from time to time~~ party thereto and Bank of America, N.A., as administrative agent ~~swing line lender and L/C issuer. (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on June 10, 2021 (SEC File No. 001-34177)~~(filed herewith).

~~10.9~~10.7						Amendment No. 1 to Credit Agreement, dated as of ~~July 30, 2021,~~August 2, 2022, by and among WarnerMedia Holdings, Inc., Warner Bros. Discovery, Inc., Discovery Communications, LLC, ~~Discovery, Inc.,~~ Scripps Networks Interactive, Inc., certain lenders party thereto and JPMorgan Chase Bank, ~~of America,~~ N.A., as agent (filed herewith).*

10.8						Purchase and Sale Agreement, dated as of March 27, 2019, by and among Warner Bros. Discovery Receivables Funding, LLC (f/k/a AT&T Receivables Funding II, LLC), Turner Broadcasting System, Inc. and various entities party thereto as originators (filed herewith).*

10.9						First Amendment and Joinder to Purchase and Sale Agreement, dated as of June 26, 2019, by and among Warner Bros. Discovery Receivables Funding, LLC (f/k/a AT&T Receivables Funding II, LLC), Turner Broadcasting System, Inc. and various entities party thereto as originators (file d herewith).*

10.10						Second Amendment to Purchase and Sale Agreement, dated as of June 12, 2020, by and among Warner Bros. Discovery Receivables Funding, LLC (f/k/a AT&T Receivables Funding II, LLC), Turner Broadcasting System, Inc. and various entities party thereto as originators (file d herewith).*

10.11						Joinder Agreement, dated as of June 30, 2020, by WarnerMedia Direct, LLC (filed herewith).*

10.12						Joinder Agreement, dated as of July 5, 2022, by the various entities party thereto (filed herewith).*

10.13						Third Amendment to Purchase and Sale Agreement, dated as of June 10, 2021, by and among Warner Bros. Discovery Receivables Funding, LLC (f/k/a AT&T Receivables Funding II, LLC), Turner Broadcasting System, Inc. and various entities party thereto as originators (file herewith).*

10.14						Second Amended and Restated Receivables Purchase Agreement, dated as of April 7, 2022, by and among Warner Bros. Disco very Receivables Funding, LLC (f/k/a AT&T Receivables Funding II, LLC ), the persons from time to time party thereto, PNC Bank, National Association, Turner Broadcasting System, Inc. and PNC Capital Markets LLC (incorporated by reference to Exhibit 10.5 on Wa rner Bros. Discovery, Inc. Current Report on Form 8 -K filed on April 12, 2022).*

10.15						Third Amended and Restated Receivables Purchase Agreement, dated as of July 5, 2022, by and among Warner Bros. Discovery Receivables Funding, LLC, the persons from time to time party thereto, PNC Bank, National Association, Turner Broadcasting System, Inc. and PNC Capital Markets LLC (filed herewith).*

10.16						Performance Guaranty, dated as of April 7, 2022, by Warner Bros. Discovery, Inc. (f/k/a Discovery, In c.) (in corporated by reference to Exhibit 10.5 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).*



10.17						Warner Bros. Discovery, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 10.7 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).***

10.18						Form of Warner Bros. Discovery, Inc. Restricted Stock Unit Grant Agreement for Employees (filed herewith).***

10.19						Form of Warner Bros. Discovery, Inc. Performance Equity Program Nonqualified Stock Option Grant Agreement for Employees (filed herewith).***

10.20						Warner Bros. Discovery, Inc. 2013 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-8 filed on April 22, 2022 (SEC File No. 333-264461)).***

10.21						Warner Bros. Discovery, Inc. 2005 Non-Employee Director Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-8 filed on April 22, 2022 (SEC File No. 333-264461)).***

10.22						Warner Bros. Discovery, Inc. 2011 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-8 filed on April 22, 2022 (SEC File No. 333-264461)).***

10.23						First Addendum to Employee Matters Agreement, dated as of April 8, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc. and WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) (filed herewith).*

10.24						Second Addendum to Employee Matters Agreement, dated as of April 8, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc. and WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) (filed herewith).*

10.25						Letter Agreement, dated as of April 8, 2022, by and among Warner Bros. Discovery, Inc. (f/k/a Discovery, Inc.), AT&T Inc. and WarnerMedia Holdings, Inc. (f/k/a Magallanes, Inc.) (filed herewith).*




22						Table of Senior Notes, Issuer and Guarantors (filed herewith)

31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2						Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document (filed herewith)†♦

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)♦†

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)♦†

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)♦†

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)♦†


104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Exhibits, schedules and annexes have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be supplementally provided to the SEC upon request.

**Other instruments defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries may be omitted from Exhibit 4 in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of any such agreements will be supplementally provided to the SEC upon request.

*** Indicates management contract or compensatory plan, contract or arrangement.

†Certain provisions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K and will be supplementally provided to the SEC upon request.

♦Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, (ii) Consolidated Statements of Operations for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, (v) Consolidated Statement of Equity for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, and (vi) Notes to Consolidated Financial Statements.

5575

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WARNER BROS. DISCOVERY, INC.

(Registrant)

Date: August ~~3, 2021~~4, 2022

By:

/s/ David M. Zaslav

David M. Zaslav

President and Chief Executive Officer

Date: August ~~3, 2021~~4, 2022

By:

/s/ Gunnar Wiedenfels

Gunnar Wiedenfels

Chief Financial Officer

5676



			Page

PART I. FINANCIAL INFORMATION.

ITEM 1. Unaudited Financial Statements.

Consolidated Statements of Operations.			4

Consolidated Statements of Comprehensive ~~Income~~(Loss) Income..			5

Consolidated Balance Sheets.			6

Consolidated Statements of Cash Flows.			7

Consolidated Statements of Equity.			8

Notes to Consolidated Financial Statements.			10

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			3243

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.			4865

ITEM 4. Controls and Procedures.			4965

PART II. OTHER INFORMATION.

ITEM 1. Legal Proceedings.			4967

ITEM 1A. Risk Factors.			4967



ITEM 5. Other Information			69

ITEM 6. Exhibits.			5472

SIGNATURES.			5676


	June 30, 2021		December 31, 2020
Produced content rights:
Completed	$	9,401	$	8,576
In-production	674		731
Coproduced content rights:
Completed	940		888
In-production	97		78
Licensed content rights:
Acquired	1,198		1,312
Prepaid	683		556
Content rights, at cost	12,993		12,141
Accumulated amortization	(8,734)		(8,170)
Total content rights, net	4,259		3,971
Current portion	(653)		(532)
Noncurrent portion	$	3,606	$	3,439


	June 30, 2021		December 31, 2020
4.375% Senior Notes, semi-annual interest, due June 2021	$	0	$	335
2.375% Senior Notes, euro denominated, annual interest, due March 2022	357		369
3.300% Senior Notes, semi-annual interest, due May 2022	168		168
3.500% Senior Notes, semi-annual interest, due June 2022	62		62
2.950% Senior Notes, semi-annual interest, due March 2023	796		796
3.250% Senior Notes, semi-annual interest, due April 2023	192		192
3.800% Senior Notes, semi-annual interest, due March 2024	450		450
2.500% Senior Notes, sterling denominated, annual interest, due September 2024	554		545
3.900% Senior Notes, semi-annual interest, due November 2024	497		497
3.450% Senior Notes, semi-annual interest, due March 2025	300		300
3.950% Senior Notes, semi-annual interest, due June 2025	500		500
4.900% Senior Notes, semi-annual interest, due March 2026	700		700
1.900% Senior Notes, euro denominated, annual interest, due March 2027	713		739
3.950% Senior Notes, semi-annual interest, due March 2028	1,700		1,700
4.125% Senior Notes, semi-annual interest, due May 2029	750		750
3.625% Senior Notes, semi-annual interest, due May 2030	1,000		1,000
5.000% Senior Notes, semi-annual interest, due September 2037	548		548
6.350% Senior Notes, semi-annual interest, due June 2040	664		664
4.950% Senior Notes, semi-annual interest, due May 2042	285		285
4.875% Senior Notes, semi-annual interest, due April 2043	516		516
5.200% Senior Notes, semi-annual interest, due September 2047	1,250		1,250
5.300% Senior Notes, semi-annual interest, due May 2049	750		750
4.650% Senior Notes, semi-annual interest, due May 2050	1,000		1,000
4.000% Senior Notes, semi-annual interest, due September 2055	1,732		1,732



Total debt	15,484		15,848
Unamortized discount, premium and debt issuance costs, net (a)	(437)		(444)
Debt, net of unamortized discount, premium and debt issuance costs	15,047		15,404
Current portion of debt	(585)		(335)
Noncurrent portion of debt	$	14,462	$	15,069


	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Pretax		Tax benefit (expense)		Net-of-tax		Pretax		Tax benefit (expense)		Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency	$	121	$	(2)	$	119	$	145	$	10	$	155
Net investment hedges	(13)		2		(11)		(38)		(1)		(39)


Total currency translation adjustments	108		0		108		107		9		116

Derivative adjustments:
Unrealized gains (losses)	(141)		29		(112)		(7)		4		(3)
Reclassifications from other comprehensive income to net income	(1)		1		0		(14)		2		(12)
Total derivative adjustments	(142)		30		(112)		(21)		6		(15)
Other comprehensive income (loss) adjustments	$	(34)	$	30	$	(4)	$	86	$	15	$	101


	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Pretax		Tax benefit (expense)		Net-of-tax		Pretax		Tax benefit (expense)		Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency	$	(109)	$	14	$	(95)	$	(164)	$	57	$	(107)
Net investment hedges	29		7		36		129		(47)		82


Total currency translation adjustments	(80)		21		(59)		(35)		10		(25)

Derivative adjustments:
Unrealized gains (losses)	156		(33)		123		(203)		49		(154)
Reclassifications from other comprehensive income to net income	2		0		2		(24)		4		(20)
Total derivative adjustments	158		(33)		125		(227)		53		(174)
Other comprehensive income (loss) adjustments	$	78	$	(12)	$	66	$	(262)	$	63	$	(199)